STC to extend Vodafone Egypt acquisition talks and make final offer this month? Saudi Telecom (STC) will reportedly make its final non-binding offer for a 55% stake in Vodafone Egypt by the end of September, the local press reports, citing unnamed sources allegedly familiar with the talks. Under the original MoU, an agreement has to be reached today but the sources say the deadline to execute the transaction will likely be pushed until the end of the year. This would give STC room to submit an offer and obtain necessary regulatory approvals. The Saudi firm has twice requested extensions to the MoU signed with parent Vodafone Group in March, the last coming in mid-July. The company said that the covid-19 pandemic had presented “logistical challenges” to conducting due diligence.

Will STC lower its initial USD 2.4 bn offer? This is a likely scenario due to the covid crisis slowing down global growth and hitting oil prices, Pharos Holding suggested in a recent research note in which it said it was “not surprised that STC might cut its initial offer” given that “GCC corporate at large are facing a liquidity crunch, including STC.” Bloomberg reported this week that the company is in talks to reduce its USD 2.39 bn initial offer, citing unnamed sources. STC may also be factoring in the possibility that the Financial Regulatory Authority may force it to submit a mandatory tender for the remaining 45% of the company, which would nearly double the cost of the acquisition, Prime Capital said.

Would TE use its right of first refusal? Telecom Egypt (TE), which holds a 44.8% stake in Vodafone Egypt, will wait to assess STC’s final bid before deciding what to do, the sources claim. Chances that TE will purchase the stake using its right of first refusal are slim as the company is highly leveraged with liabilities of nearly EGP 17 bn — and also owns its own mobile network, WE, according to Hesham Hamdey, a telecoms sector analyst at Naeem Brokerage’s investment banking division. STC’s bid would not impact TE’s stake in Vodafone.

Background: STC began due diligence in March after signing a non-binding MoU with Vodafone Group in January to purchase its stake in Vodafone Egypt in a sale that would value the largest mobile operator in the country at USD 4.4 bn. The sale could potentially be the biggest-ever M&A in Egypt. The Financial Regulatory Authority said after the initial acquisition agreement that the Saudi company may be required to make a mandatory tender offer for 100% of the company if it goes ahead with the transaction.