After the Vodafone-STC deal failed Egypt-Saudi conflicts return

Cairo is still interested in completing the exit deal from Vodafone Egypt, despite announcing the end of the term of the memorandum of understanding with the Saudi Telecom company, without reaching an agreement, according to Egyptian official statements. Economists are watching with caution the consequences of the failure to reach an agreement between Vodafone and the Saudi Telecom Company (STC), especially in light of suggestions that the Egyptian side was the reason for the deal’s failure. Despite Saudi enthusiasm to buy one of Egypt’s largest mobile companies, mysterious reasons stopped the massive deal.

Observers say that Saudi Arabia has pumped huge investments and deposits into the Egyptian economy in the wake of the 2013 military coup and that the failure of this deal may anger the Saudis and end the economic honeymoon between the two countries. After more than eight months have passed since the signing of the memorandum of understanding, the Saudi Telecom Company announced the end of the term of the memorandum due to a lack of compatibility with the concerned parties. However, the Saudi company said that an understanding was reached with the Vodafone Egypt group to keep dialogue open, without mentioning Egypt.

Bloomberg says that the Saudi company said that its bid to buy 55 per cent of Vodafone Egypt, which is the stake owned by Vodafone, brings the company’s total value to $4.35 billion. The coronavirus crisis meant that negotiations over the memorandum of understanding signed between the two companies last January was postponed before it was extended twice in April and June. According to Saudi specialists, the Saudi company continues negotiations as a regular matter in the event of a massive acquisition like the one currently taking place. Vodafone Egypt, the largest mobile operator in the country, has 44 million subscribers with a 40 per cent share of the telecom market. The Public Investment Fund, the Saudi sovereign wealth fund, owns a majority stake in STC.

Here the question remains: What are the available scenarios to complete the deal? The head of research for Investment Prime Bank, Amr el-Alfi, believes that the deal is suitable for all parties associated with it. He expects negotiations on the deal will continue. The deal allows Saudi Telecom to enter the promising Egyptian telecom market. It also allows Vodafone to exit the investment in Egypt, according to its desire and prioritisation. There is a clear desire by Riyadh to invest in the Egyptian telecommunications sector for two main reasons. The first is that the sector is witnessing exponential growth in Egypt. The second reason is that the Kingdom’s strategic vision 2030, adopted by Crown Prince Mohammed bin Salman, is based on diversifying sources of income and ending dependence of the Saudi economy on oil resources.

The telecommunications sector is one of the most critical investment alternatives for the Kingdom, especially in light of its remarkable growth in profits in 2019, at a value that exceeded $3 billion. The deal also allows Telecom Egypt a choice between buying and selling. According to the laws of the Egyptian market, the Saudi Telecom Company must submit a compulsory purchase offer for the entire Vodafone Egypt, including the share owned by the Egyptian Telecom Company, according to Bloomberg. According to al-Alfi, the best scenario for Telecom Egypt is selling, because it will be the most profitable for the company at the advertised price. He pointed out that the capabilities of Telecom Egypt, at present, allow it to buy, but it may lead to a decline in the value of the share, due to the resort of Telecom Egypt in that case to debt.

Telecom Egypt said that it had not received any offers from the two parties to the deal, between Vodafone Group and the Saudi Telecom Company, stressing that it had not been informed of the details of the discussions and the terms of negotiation between the two parties. Telecom Egypt stated that it has thoroughly studied all options available to it, and has also studied and analysed its rights in accordance with the concluded agreements and applicable laws. Telecom Egypt affirmed its ability to implement several strategic options while preserving the interests of the company and its shareholders. These options include without limitation the following: Exercising the right of pre-emption (to buy) guaranteed to it in accordance with the shareholders’ agreement concluded with the global Vodafone group and the articles of association of Vodafone Egypt.