Vodafone Egypt CEO: STC acquisition a “good vote of confidence” in Egypt
M&A WATCH- Saudi Telecom to purchase 55% stake in Vodafone Egypt for USD 2.4 bn; Vodafone brand + team to stay in Egypt as part of transaction: Saudi Telecom (STC) yesterday signed a non-binding agreement to Vodafone Group’s 55% stake in Vodafone Egypt in a USD 2.39 bn all-cash transaction, according to statements from Vodafone (pdf) and STC. The sale values 100% of Vodafone Egypt at USD 4.4 bn and would, if executed, give STC a 42% share of Egypt’s telecoms market.
The Vodafone brand is here to stay: Vodafone Group has agreed to allow STC to use the Vodafone brand, roaming arrangements and procurement system as well as other services under what it calls a “partner country agreement.”
And Vodafone itself isn’t leaving Egypt: Vodafone Group will retain its shared services centers and plans to recruit another 1k people over the coming 12-18 months. The centers offer everything from call-center services to application development and support for Vodafone’s global operations.
What’s next? STC will kick the tires in a due diligence process and said that the initial agreement will remain valid for 75 days and is extendable if both companies consent. Vodafone said it expects the transaction to close in June of this year, pending the green light from regulators.
Telecom Egypt is considering its options: Telecom Egypt, which owns the remaining 45% stake in Vodafone Egypt, said in a statement (pdf) that it will “consider all the possible ways” to handle its investment in the company and that it will make a decision after Vodafone and STC reach a final agreement. TE offered no specifics, but said in recent days that it is not looking to join Vodafone Group in exiting VFE.
Shares in Telecom Egypt surged 10% yesterday to close at EGP 11.22, according to EGX data. STC shares dropped 1%, while Vodafone Group saw its London-listed shares fall 0.14%.
Enterprise yesterday sat down for a one-on-one with Vodafone Egypt CEO Alexandre Froment-Curtil, who explained to us what the agreement entails and what the next steps are for the telecom group in Egypt. Edited excerpts from our conversation:
Enterprise: What would like the Egyptian business community to know this morning about the transaction?
Alexandre Froment-Curtil: We think this transaction is very good news for Egypt — we have a large foreign investor who’s interested in entering Egypt, in entering the sector through a stake in the country’s biggest ICT business. We think that’s just a very good vote of confidence for Egypt.
It’s also important to know that this transaction includes a commercial agreement that will keep key elements from Vodafone in Egypt. That’s our partner market agreement, and it’s going to have a tangible effect because our brand will remain as it is. Our brand’s shape, form, and color will stay 100% the same, with no alterations whatsoever. We’ve entered a five-year partner market agreement, which is subject to renewable if that’s something everyone wants.
I think there’s a clear realization that Vodafone Egypt is a brand that lives in the heart of Egyptians. There’s a real demand for the brand’s presence here and Vodafone Group is very happy to trust the country to handle the brand properly.
As a management team, we’re all committed to working with a new shareholder to bring stability to the business, but we’re also very much committed to the culture. What makes Vodafone Egypt really special at the end of the day is the people and the culture we have, which stands out from competitors in the market. This, coupled with management’s commitment to continuity under a new shareholder, is what makes the secret sauce of Vodafone Egypt.
For enterprise customers, we want them to know we’re delivering stability today, but also continuity and innovation tomorrow. Through our partner market agreement, we’re bringing Vodafone Group technology innovations to Egypt. That includes our internet of things platform, as well as the deployment of our latest network innovations.
E: Are you personally staying on board?
AFC: Yes, absolutely. I’m staying in Egypt with the new shareholder because I like the country and I love this business — and I think we can do great things.
E: How did this unfold?
AFC: Vodafone Group has been here in Egypt for 22 years — and successfully so. The group is present in multiple markets across the world, and this move is part of a strategy to simplify our geographical portfolio.
E: Did you shop the transaction around?
AFC: No. STC approached Vodafone Group a couple of months ago with an unsolicited buyout offer. The Group’s chief executive, Nick Read, who was appointed 15 months ago, had made clear that we were really clarifying our geographic portfolio.
E: So there was no competitive process.
E: Had there been any plan earlier to look at other options like an IPO?
AFC: None. It was very much unsolicited.
E: You’ve recently sold out of New Zealand. Where else have you offloaded stakes?
AFC: We sold out of China Mobile in 2010, we sold out of France in 2010, and the US in 2013 with a sale to Verizon. We sold out of New Zealand very recently. We also sold out of Malta very recently. The vision behind all of this is very straightforward: It’s meant to create two distinct geographic areas in which we lead: Europe and Sub-Saharan Africa.
Egypt has the highest growth rate among all Vodafone markets and is full of digital potential. It’s a land of opportunity. But while remaining a fantastic business for the group, it is slightly the odd one out just from a geographical perspective.
Our message to our shareholder has always been that there’s more potential, so invest more in Egypt and you will get more return because we can really grow the business fast. So the group decided that, with all their capital allocations in Europe, where we are investing in 5G, it’s best to continue our growth outside the group. Vodafone Group doesn’t want to be in a situation where they are holding us back from the pace of growth we want.
And now here we are, with another shareholder we believe can fund us properly and propel faster growth. That’s very straightforward because, even though it’s a very tough decision when you’ve had a great business and great attachment to the country, the business upside is very clear.
E: Has there been any discussion about the remaining stake held by Telecom Egypt?
AFC: Of course. Because we get along very well with Telecom Egypt and also out of respect, we have informed them of what we’re doing. It’s important to note here that STC has made it very clear that they’re not interested in acquiring TE’s 45% stake in Vodafone Egypt. They only want Vodafone Group’s share. They’re very happy with the way the current shareholders cooperate and want to continue that relationship. TE has a shareholder agreement with Vodafone Group, and they have a right of first refusal, and we will have the discussion in due course.
E: Who’s advising on the transaction?
AFC: We haven’t appointed anyone yet, but we’ll be doing so next week.
E: Let’s talk about STC. Around 90% of their revenue is from KSA right now, correct?
AFC: It’s a heavy part of their business, but they have that ambition to really build their regional presence and be a regional leader. What’s interesting for our team is that we have a reputation that Vodafone Egypt’s staff and management team are probably one of the best in the Middle East. Our Saudi colleagues are really looking forward to having that on board. They actually want to make us a regional hub. This will all create a very different, interesting dynamic. We were previously a standalone entity between Africa and Europe, but now we have the chance to be at the heart of a region.
STC is a good partner for us for many reasons. First and foremost, it continues the FDI story in Egypt, which is very important for the private sector market. Secondly, as you can imagine, STC is a well-funded organization. It actually has zero debt, compared to Vodafone, which currently has high levels of debt. So STC will be able to fund our growth story. Finally, STC has a very clear regional leadership vision. Today, they’re present in five countries, but they have a goal to be the leading operator in the Middle East.
E: How would you be a regional hub here? What does that mean?
AFC: Well, I think there are many opportunities. I don’t want to talk on behalf of STC, but for example we’ve built here in Egypt a shared service center. We have 7,800 employees who are serving the rest of the globe. Whereas originally we were serving them in terms of call center services, now the vast majority of work we do is in robotics, AI, and app development. That means highly technical and skilled individuals, and I think that is extremely appealing to a group like STC to have that high-quality IT tech capability like we have in Egypt. Our network, the way we develop our apps, the fact that it’s all in-house — I think that’s very exciting. It has evolved from being a straightforward call center service, although we still do have call center and contact center capabilities. For example, 100% of our vote from Ireland’s contact center is here. But now it’s developed a lot and is much more focused on high-tech solutions. One example I like a lot is that all our chatbots are developed here. We’re running smart cities in Spain from here. All these technologies are developed by Egyptians and run out of Egypt. Vodafone Group does not want to let go of that.
E: Where else does Vodafone have these partner market agreements?
AFC: We have them in over 60 countries, but what’s special here is how STC decided to go ahead with it. Vodafone has a range of services to offer in this type of situation, and typically some countries pick and choose which ones to take. STC said “I want them all:” The brand, 100% of the roaming agreements, 100% of your purchasing capabilities, 100% of your technology capabilities, 100% of your global enterprise and customer management. They want everything we have to offer, and that’s great news for us as a local operation because it gives us more continuity in getting and giving the best.
E: What’s driving growth in the telecom market?
AFC: There’s underlying growth, which is of course the population growth. The second driver is demand for data. Only 25% of customers are on 4G today because of the pace at which customers are upgrading to 4G handsets. Can you imagine that growth potential? And that’s very exciting for us, and now for STC. The third layer is actually diversification. Then look at products like Vodafone Cash, our peer-to-peer mobile money transfer service. Then consider the work we’re doing with the government on the new universal health insurance, where we are a tech partner to the government in this agreement with them. There is no SIM card. We are a tech partner for the digitization of government and the enterprise — with or without mobility.
E: What are your expectations for growth this year?
AFC: We always have double-digit growth expectations. Egypt is really a place where you see potential everyday. And more so for us, we see digital potential everyday. There’s not a day when we don’t wake up thinking, “Let’s go after this one today.” That’s the beauty of both the country and the company that we’re in: Not only are there digital opportunities, but they’re within reach.