SOUTH AFRICA: VODAFONE IN SECOND LARGEST SOUTH

UNCLAS PRETORIA 004936 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECPS EINV ECON SF SUBJECT: SOUTH AFRICA: VODAFONE IN SECOND LARGEST SOUTH AFRICAN FOREIGN INVESTMENT REF PRETORIA 1959 ¶1. (U) Summary. British-based cellular group Vodafone announced plans to takeover investment firm Venfin in order to boost Vodafone's stake in South African cell phone provider Vodacom. The move makes Vodafone a 50% owner of Vodacom, and allows Vodacom to pursue African, Middle Eastern, and European markets that were previously off limits because of shareholder agreements. Provided that there are no regulatory snags, Vodafone's investment will be the second largest foreign investment in post-apartheid South Africa. End Summary. ¶2. (U) British-based cellular group Vodafone announced plans to spend R15.6 billion ($2.4 billion) to gain controlling interest over investment firm Venfin, which owns 15% of South African cell phone operator Vodacom. The deal will boost Vodafone's stake in Vodacom from 35% to 50%. The other 50% of Vodacom is owned by South Africa's monopoly fixed line operator Telkom. This will allow Vodacom to proceed with expansion plans in Africa, Europe, and the Middle East. ¶3. (U) Vodafone's move was complex and expensive. Once Vodafone takes over Venfin, it will shed all of Venfin's holdings except for Vodacom. The acquisition will allow Vodacom to pursue market opportunities previously off limits as the result of complicated shareholder agreements preventing it from entering any country north of the equator, such as Egypt where the government expects to offer a third cellular license by the end of the year. The deal with Vodafone eliminates these restrictions. ¶4. (U) Vodafone's purchase of 4.6 million VenFin shares at prices between R44.75 and R46.60 rewarded VenFin shareholders with a 41% premium over the 30-day average selling price. This makes Vodafone's investment the second largest foreign direct investment since 1994. How Vodafone will meet the government's black economic empowerment goal of 25% equity in black hands remains unclear. ¶5. (U) Vodafone's announcement came after another British group, Barclays Bank, bought a majority stake in South Africa's largest retail bank, ABSA, for R33 billion ($5.5 billion) in May this year. Financial analysts said these investments point to increasing confidence in the South African economy, now on track to grow at 4.4% this year, the highest rate since 1988 (Reftel). TEITELBAUM