The Saudi Telecom Company (STC) has completed, at the end of June, a due diligence study in its potential acquisition of Vodafone Group’s stake in Vodafone Egypt.
STC financial advisors will review the study in preparation for a final decision on the value of the mandatory offer to be submitted to Vodafone for buying its 55% stake in Vodafone Egypt.
According to sources close to the deal, the submission of the mandatory purchase will be officially announced on 15 July at 5pm Riyadh time. STC may also instead announce the extension of the due diligence agreement, according to the agreement that was extended in April for a period of 90 days.
In case STC announces that it has made a mandatory purchase offer, Vodafone Group will have three options, either to approve, reject, or enter a new round of negotiations on the financial value.
At the end of January, Vodafone and STC announced that they had signed a Memorandum of Understanding (MoU) that would see the former sell its 55% stake in Vodafone Egypt to the Saudi company. The two parties reached an agreement that would see Vodafone sell all its shares in its Egypt unit at a value of nearly $2.4bn.
The sources added that the Saudi mobile operator remains interested in the deal and will send its mandatory offer about the 55% purchase. At the same time, the sources confirmed that STC is not willing to buy the remaining 45% owned by Telecom Egypt (TE).
The ownership structure of Vodafone Egypt is divided into 55% belonging to Vodafone Group, 44.8% belonging to TE. The remaining 0.2% stake belongs to shareholders.
The potential deal is subject to the provisions of Chapter 12 of Egypt’s executive regulations of the Capital Market Law No 95 of 1992 regarding purchase offers with the intention of acquisition.
TE’s Board of Directors has agreed to appoint a strong alliance that includes both EFG Hermes and Citibank as investment banks, in addition to Al-Tamimi and Co as legal consultant. The alliance will provide a full study of the options available to TE regarding dealing with its stake in Vodafone Egypt.
The company will announce the results of that study and any developments once they emerge, however, the study’s time-length has yet to be announced.
The sources indicated that the STC is expected to agree with VIS on an extension of at least a month to the negotiations period for several reasons. These include the limited time to present the due diligence to financial advisors, as the company completed this only at the end of June.
The recent and ongoing novel coronavirus (COVID-19) pandemic has also affected global markets and consumer spending on telecommunications services. It is expected, according to sources, that the deal will be officially closed by this coming November.
Naeem Research maintains its BUY recommendation on TE with a target price of EGP 19.1 / share, disregarding its eventual position in the transaction (whether to sell, retain or raise its stake in Vodafone Egypt).
The deal, which values Vodafone Egypt at an enterprise value of $4.35bn, implies a fair value of EGP 18/share for TE, including just its standalone investment in Vodafone Egypt. This also excludes its underlying business.