Vodafone backtracks on Egypt plan

Vodafone has cancelled a longstanding plan to sell its stake in its Egyptian operation to Saudi Telecom Company (STC).

Actually, that could be incorrect: the telco group said that talks with STC “have been terminated,” that passive clause meaning that either party could have pulled the plug on the proposed deal. And in its short statement on the matter, Vodafone did not give much else away; it did not share the reasons for the failure of the discussions.

“We believe that the Egyptian government is committed to an optimal framework for the telecoms sector, which will enable Vodafone Egypt to deliver on the country’s vision of digitization and financial inclusion and create a technology hub to support our growth in the African region,” said Vodafone Group CEO Nick Read (pictured).

That’s nicely vague.

Read has made much of Vodafone’s portfolio optimisation strategy since he took over as CEO two years ago. It has narrowed its focus to Europe and Africa, and in addition has analysed its portfolio to determine whether it is the “best owner” of each asset, before looking at a possible sale or merger; in the first half of this year it offloaded its Malta operation and agreed to merge with TPG Telecom in Australia, for example.

At the start of the year it clearly believed it was not the best owner of its 55% stake in Vodafone Egypt, nor that the business fitted with its focus. It brokered a US$2.39 billion cash deal to offload its holding in the company to STC, giving Vodafone Egypt an enterprise value of $4.35 billion.

The parties said they expected the deal to close by the end of June, subject to the successful completion of due diligence by STC. That due diligence process was delayed, in no small part due to the Covid-19 pandemic, but in September Vodafone announced that it was almost complete. It also noted that the memorandum of understanding (MoU) it signed with STC had expired, but that the companies remained in discussions and expected to finalise the transaction in the near future.

As we now know, that was not to be. We just don’t really know why.

Late last month STC announced the resignation of chief executive Nasser Al Nasser, although given that he will stay in the role until the spring and the firm has yet to find a replacement, it’s probably a bit of a stretch to suggest that change in personnel is a factor here. It is also pretty unlikely that the decision was motivated by the opportunities within the telecoms landscape in Egypt, as referenced by Vodafone’s statement, issued this morning.

Back in January, Vodafone was pretty clear on why it wanted to sell out of Egypt.

“This transaction is consistent with our efforts to simplify the Group to two differentiated, scaled geographic regions – Europe and sub-Saharan Africa. Additionally, it will reduce our net debt and unlock value for our shareholders,” Read said, at the time.

That is still very much Vodafone’s stated strategy. In the telco’s first-half results announcements in the autumn, Read reiterated the key tenets of the telco’s transformation plan and admitted that the one area that still needs work is around returns to shareholders. “Our return on capital is still below our weighted average cost of capital,” Read said. “I am not happy with our current position.”

Whether he is happy about the change in circumstances in Egypt is anyone’s guess, given the lack of information in the announcement. One assumes not.