M&A WATCH- It looks like STC will indeed submit a lower bid for Vodafone Egypt –report: Vodafone Group and Saudi Telecom Company (STC) have reportedly reached a preliminary agreement to reassess the value of Vodafone Egypt ahead of a potential acquisition of its majority stake by STC, Al Mal reports, citing sources in the know. The Saudi firm originally submitted an initial USD 2.39 bn bid for Vodafone Group’s 55% stake in the company, but the liquidity-starved UK telecom giant is now open to accepting a lower valuation with its share price down almost 25% year-to-date, the sources said. The company would still negotiate a “profitable exit” from Egypt to support costly 5G investment plans elsewhere, they added. This confirms recent reports that STC could lower the USD 2.39 bn price tag originally announced when it signed a non-binding MoU with the group in January before the pandemic hit.

Remind us again why STC would lower the price? Pharos Holding suggested in a recent research note that a slowdown in global growth and tumbling oil prices, coupled with a liquidity crunch facing most corporates in the GCC as a result of the pandemic, make it likely that STC could cut its initial offer. STC may also be factoring in the possibility that the Financial Regulatory Authority (FRA) might force it to submit a mandatory tender offer for the remaining 45% of the company, which would nearly double the cost of the acquisition, Prime Capital said.

Vodafone doesn’t see TE using its right of first refusal: Vodafone Group doesn't think state-owned Telecom Egypt (TE), which holds a 44.8% stake in Vodafone Egypt, will use its right of first refusal and lodge a bid for the 55% stake held by the UK company, the sources said. TE could actually be looking to offload its stake, but is still waiting for Vodafone and STC to agree on a final value for the Egypt business, they added. An analyst at Naeem Brokerage last week said that TE’s debt load makes it unlikely that it will go ahead with the purchase.

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 FRA 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.