Increasing black ownership of South African companies
Vodafone’s (VOD) stake in its African subsidiary Vodacom is set to fall. Vodacom is based in Johannesburg, South Africa, but it operates in several African countries, including Mozambique, Tanzania, and the Democratic Republic of the Congo.
South Africa has adopted laws aimed at increasing black ownership of companies. To comply with the laws, Vodacom is selling shares worth $1.3 billion, or a stake of around 6%, to a group of black investment funds. As a result, black investors are set to control 20% of Vodacom after the transaction, which is expected to take place in September.
Vodafone stake to fall 4%
But increasing black ownership of Vodacom is going to cut Vodafone’s stake in its African subsidiary. Vodafone currently owns 65% of Vodacom, and that is expected to fall to 61% once the transaction to boost black ownership is completed.
However, Vodafone will continue to be the majority shareholder in Vodacom. Vodafone’s service revenue from Vodacom grew 5% in fiscal 2018, which ended in March. But Vodafone’s overall revenue fell 4.4% to 41.1 billion euros.
Growth opportunity in Africa is enormous
The African market presents an enormous growth opportunity for operators on the continent due to low smartphone penetration. According to IDC (International Data Corporation), smartphone penetration in Africa was only 39% last year. Operators such as Vodacom and Orange (ORAN) are likely to see increased demand for their services, particularly mobile data, as more people acquire smartphones to stream mobile video.
In 2014, Vodafone collected $130 billion from selling its stake in Verizon Wireless to Verizon (VZ). It has used the funds to grow its business through network investments and strategic acquisitions, including buying Liberty’s (LBTYA) operations in several European countries.
Verizon and its rival AT&T (T) have both completed several acquisitions of their own since the Verizon-Vodafone deal closed.