Vodafone Egypt franchises some stores, but keeps main branches

Vodafone Egypt has begun transferring the management of a number of its stores to its agents, under the franchise system, while maintaining main branches at large malls under its direct management.

According to a company source, the franchising is being made in line with a strategy that the company has been implementing for some time. It seeks to maximise the use of its stores located in various governorates.

On the other hand, the Saudi Telecom Company (STC) has earlier signed a memorandum of understanding (MoU) with the Vodafone International Group to acquire, for about $2.4bn, the latter’s 55% stake in its Egypt operations.

On 13 April, STC announced the MoU’s extension for a period of 90 days, due to the need for more time to complete procedures related to the deal. Work on the takeover bid had been suspended in light of the novel coronavirus (COVID-19) pandemic.

Vodafone International currently owns a 55% stake in Vodafone Egypt, with Telecom Egypt (TE) owning a 44.8% stake, and small shareholders owning the remaining 0.2% stake.

Naeem Research sees that, assuming due diligence is completed and the in-principal agreement on the price and other crucial terms takes place, STC would have to officially make a mandatory tender offer (MTO) to purchase a maximum of 100% of Vodafone Egypt.

Both Vodafone International and STC would then also need a further 75 days for the transaction to be completed. TE, on the other hand, has the option to exercise the right to pre-emption for a period of 45 days, starting from the date of STC’s offer announcement.

Assuming TE opts to maintain the status quo on its 45% stake in Vodafone Egypt, Vodafone International Group and STC would have to enter into a definitive agreement. Following this, the deal could be completed by mid-December 2020 at the latest.

However, in the event that TE does exercise its pre-emption rights, the eventual outcomes remain unclear. The general view holds that the best outcome for TE would be to sell part of its stake in Vodafone Egypt, with no indications yet of an interest shown by STC to buy more than Vodafone International Group’s 55% stake.

Naeem Research expects that TE’s investment in Vodafone Egypt would remain unchanged, adding that it maintains its BUY recommendation on TE with a TP of EGP 19.1 per share