Vodafone Prepares for More Housekeeping

Deal with Vodacom in Ghana Could Be a Logical Move

As Vodafone consolidates its international portfolio of assets, attention is turning to the future of the company’s 70 percent equity stake in Vodafone Ghana.

The operator has been busy recently merging or realising value for a number of its businesses around the world. The announced mergers of its operations in India with Idea Cellular, in Malta with Melita and its recent tie-up in the Netherlands with Liberty Global are nods to the need to consolidate in several markets (see Intrigue in the Med).

In May 2017, Vodafone announced that it was selling an effective 35 percent of its 40 percent shareholding in Kenya’s Safaricom to Vodacom, Vodafone’s South African unit which has long been its main vehicle in Africa. The deal involved Vodacom issuing shares to Vodafone, taking the latter’s 65 percent equity stake in Vodacom up to 70 percent.

At first sight, this is sensible move on Vodafone’s part to clean up its holdings. Safaricom has been a phenomenal success story both for Kenya and Vodafone. It has long dominated the market and created the groundbreaking M-Pesa mobile payments platform, which has helped revolutionise mobile banking in Africa. However, Vodafone has always owned a minority stake in the business. Operationally, and in terms of creating value in the future, it would seem reasonable to house the Safaricom shareholding in its South Africa vehicle rather than hidden in the Vodafone Group books.

This deal leads us to the curious case of Vodafone Ghana. Besides Egypt, Ghana is a conspicuous stand-alone business for Vodafone in Africa. Even the most loyal of stalwarts in the company would surely have to admit that its acquisition of a stake in Ghana Telecom, as it was the formerly known, has been somewhat of a disappointment.

Back in 2008, Vodafone acquired a 70 percent stake for $900 million, valuing Ghana Telecom at $1.3 billion. The move raised eyebrows at the time, as Ghana Telecom was not highly profitable and was a distant number-two in the mobile market to MTN. Its established fixed-line network needed substantial investment.

In fairness to Vodafone, the company has dedicated significant financial and other resources to Ghana. Over $600 million has been invested in networks and the company has continued to support its business when co-shareholders have been unable to invest further.

But market leader MTN has gone from strength to strength and remains the dominant force. Airtel and Millicom’s Tigo are now combining their businesses to create a strong number-two company. Is it time for Vodafone to cut loose from Ghana?

In my view, the answer is “sort of”. Strategically, the main problem is finding a buyer that would take Vodafone’s 70 percent shareholding. Vodafone Ghana now has many hundreds of millions of dollars of debt. Assuming there was some equity value in the business, it’s difficult to envisage any new entrant coming into the market to take on MTN and the merged Airtel-Tigo entity.

Instead, a sensible move would be to transfer the shareholding in Vodafone Ghana to Vodacom. On one hand, this would be just another example of good housekeeping. But, on the other hand, Vodacom has considerable experience of operating in markets as diverse as South Africa, Mozambique, the Congo and, soon, Kenya. This experience would be relevant to the challenges of operating in Ghana. And it would allow the premium Vodafone brand to remain in Ghana — something the locals have long believed to be important.

There will be plenty of legal and financial hurdles to overcome to conclude any future transaction, but the Ghana business would seem to be more at home in the Vodacom stable than as a constant minor headache for the team in the Vodafone Group headquarters.