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CIVH, Vodacom $855m infrastructure merger forms new South Africa InfraCo

Four-phase transaction will culminate in one of Africa’s largest fibre deals covering a wide geographical area.

By João Marques Lima

Co-founder and Editor, The Tech Capital

6 Mins

November 11, 2021 | 6:00 AM GMT

CIVH, Vodacom $855m infrastructure merger forms new South Africa InfraCo

Shameel Joosub, CEO of Vodacom Group. Source: Vodacom

Telecoms investor Community Investment Ventures Holdings (CIVH) and Vodacom Group, Vodafone Group Plc’s sub-Saharan African subsidiary, have agreed on terms whereby Vodacom will acquire a strategic stake in CIVH.

Subject to regulatory approvals, Vodacom Group said it plans to hold a co-controlling 30% equity interest in a newly formed InfraCo entity into which all of the material assets currently owned by Dark Fibre Africa (DFA) and Vumatel will be transferred in addition to certain Vodacom owned fibre assets.

Vodacom has an option to acquire an additional 10% stake in InfraCo to 40%. CIVH will hold an initial stake of 70%.

Vodacom will pay for the transaction through a combination of R6 billion (US$388.58 million) cash and the contribution of its fibre-to-the-home, fibre-to-the-business and Business-to-Business transmission access fibre network infrastructure to the InfraCo, at a valuation of R4.2 billion ($272 million), in return for new shares in InfraCo.

Vodacom will acquire further (secondary) shares from CIVH sufficient to increase its shareholding to at least 30% in the InfraCo at a pre-agreed formula.

In summary, the complex transaction can be split into four simplified phases as explained below:

  • Step 1: CIVH will transfer all of its material assets and operations, including Vumatel and DFA, into a newly created entity: InfraCo;
  • Step 2: Vodacom will subscribe for new shares in InfraCo in return for R6 billion of cash;
  • Step 3: Vodacom will contribute its FTTH, FTTB and Business-to-Business transmission access fibre network infrastructure to the InfraCo, at a valuation of R4.2 billion in return for new shares in InfraCo;
  • Step 4: Vodacom will acquire further (secondary) shares from CIVH sufficient to increase its shareholding to at least 30% in InfraCo at a pre-agreed formula.

Based on Vodacom’s current expectations, including the date of closing and the InfraCo valuation, the secondary purchase is estimated to be approximately R3 billion ($194 million).

This would imply that the total purchase price paid by Vodacom, including the value of the transfer assets, equates to R13.2 billion ($854.87 million).

Shameel Joosub, CEO of Vodacom Group, said: “Our agreement with CIVH aligns with Vodacom Group’s strategy to build high quality and resilient fixed and mobile networks with and through selected strategic partnerships across the African continent. It also supports Vodacom’s purpose-driven plan to assist the government in rebuilding the economy post-Covid.”

Vumatel is one of South Africa’s largest fibre network operator, which builds, owns and operates a FTTH network, using a wholesale open-access model that passes more than 1,2 million homes and deployed over 31,000 kilometres of fibre infrastructure across the country.

DFA is a provider of carrier-grade dark fibre, specialising in building, installing, and operating a national metro fibre network spanning 13,000 km and 37,000 connected circuits and supplying a range of dark fibre and managed fibre products to enterprise customers.

Also commenting, CIVH Group CEO Raymond Ndlovu said: “This milestone investment will boost our ambitious fibre roll-out programme across the country and assist in narrowing the digital divide by enabling affordable access to connectivity in some of the most vulnerable parts of our society. Ultimately, it will result in much needed inclusive economic growth.”

UBS South Africa (Pty) Limited has acted as the Johannesburg Stock Exchange (JSE) sponsor for the transaction. Goldman Sachs International has served as financial advisor whilst Cliffe Dekker Hofmeyr has provided legal advice.

Vodacom bulks Egypt footprint

In other news, Vodafone Group (NASDAQ: VOD) has agreed to transfer its 55% shareholding in Vodafone Egypt to Vodacom.

The company said the transfer simplifies the management of Vodafone’s African holdings and further strengthens the delivery of connectivity and financial services in Africa.

The transaction values Vodafone’s 55% shareholding in Vodafone Egypt at €2,722 million on a debt-free, cash-free basis, implying a multiple for the last twelve-month period ended 30 September 2021 of 7.3x Adjusted EBITDAaL and 12.2x Adjusted OpFCF2.

Based on Vodafone’s 55% share of the net debt in Vodafone Egypt as at 30 September 2021 the total equity consideration is €2,365 million.

Approximately 80% of the Purchase Consideration (€1,892 million) will be settled by the issue of 242 million new ordinary Vodacom shares to Vodafone at an issue price of ZAR 135.75 per share. As a result, Vodafone’s ownership in Vodacom will increase from 60.5% to 65.1%.

The remaining 20% of the Purchase Consideration (€473 million) will be settled in cash.

Vodacom operates in South Africa, Tanzania, the Democratic Republic of the Congo (the DRC), Mozambique, Lesotho and Kenya, where its mobile networks cover a population of over 295.8 million people.

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João Marques Lima

Co-founder and Editor, The Tech Capital

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