Vodacom in biggest BEE telecoms deal
• Launches R1bn employee share ownership • Scheme targeted more at general staff
Vodacom will spend R1.1bn on an employee share ownership scheme as part of its R17.5bn broad-based black economic empowerment (BEE) deal — the biggest BEE deal in the telecommunications sector. The scheme will benefit 4,637 permanent employees in SA.
“The employee share scheme effectively is for all employees, but black employees and [especially] black female employees will obviously get the lion’s share,” Vodacom Group CEO Shameel Joosub told Business Day.
It was targeted more towards general staff as opposed to management, he said.
Vodacom would spend about R1.1bn on the employee share scheme, which would be geared to give staff effective exposure to the group’s shares of R3.5bn — an average of nearly R755,000 per qualifying staff member.
Meanwhile, the group’s new BEE deal, which was announced on Monday, will replace the scheme that was launched in 2008 and which expires in October 2018.
If approved, the transaction will pool all of Vodacom’s BEE shareholders under a single entity, JSE-listed YeboYethu, and will see existing black shareholders exchanging their shares in Vodacom’s South African business for Vodacom Group stock, giving them exposure to other markets.
The transaction would raise the group’s black ownership from 17% to 20%, Joosub said.
REQUIREMENT
But that still might not be enough to satisfy a possible regulatory requirement that mobile operators must be 30% black-owned to bid for spectrum.
“If government says you have to have 30% BEE shareholding, that remains to be seen and there’s a risk that you’ll have to do a larger BEE shareholding scheme at some point,” said Sentio Capital portfolio manager Imtiaz Suliman.
“That’s the cost of doing business and getting spectrum if it comes to market,” Suliman said.
Vodacom’s share price fell 2.9% to R140.31 on Monday, largely because the 115-million new shares to be issued under the scheme would dilute the group’s dividends, Suliman said.
Joosub pointed out that while there had been talks about the 30% BEE hurdle rate in the past, “there’s also been a big push to align to the [black economic empowerment] scorecards”.
“A level four is required in the scorecards [to bid for electromagnetic spectrum]. We’re currently a level three,” he said.
Vodacom’s initial BEE scheme had generated R7.5bn in value for black shareholders.
About R3bn of that would be paid out as a special dividend — leading to a 42% jump in the YeboYethu share price on Monday — while R4.5bn would be invested into the new scheme.
MORE CLARITY
YeboYethu chairwoman Zarina Bassa said the new deal would provide more clarity for the empowerment vehicle’s 102,000 investors.
“The questions we’ve had from shareholders over the years were: what is the exit mechanism for the [first] deal?; and [secondly] how does the YeboYethu price compare to the Vodacom Group price? And those are addressed in this deal,” Bassa said.
Vodacom employees will own about 20% of YeboYethu via the share scheme.
Joosub said the new scheme would cost about R4.2bn to implement, with about R2.7bn spent upfront and the remaining R1.5bn spread over the 10-year life of the structure.
“Our original BEE deal has delivered significant value to our BEE partners. Its unwind will deliver approximately R7.5bn of value, or 6.7-times the original capital our BEE partners invested into the 2008 transaction,” he said.
Vodacom said it was likely to confirm the final price of the transaction in early July, while the deal would probably be implemented in September.
In 2016, Vodacom’s rival, MTN sold a 4% stake for about R10bn to black investors through a scheme called MTN Zakhele Futhi.