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Cablegate: South Africa: Vodafone in Second Largest South

VZCZCXRO0887
RR RUEHDU RUEHJO RUEHMR
DE RUEHSA #4936 3541006
ZNR UUUUU ZZH
R 201006Z DEC 05
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 0562
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHEG/AMEMBASSY CAIRO 0262

UNCLAS PRETORIA 004936

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECPS EINV ECON SF
SUBJECT: SOUTH AFRICA: VODAFONE IN SECOND LARGEST SOUTH
AFRICAN FOREIGN INVESTMENT

REF PRETORIA 1959

1. (U) Summary. British-based cellular group Vodafone
announced plans to takeover investment firm Venfin in
order to boost Vodafone's stake in South African cell
phone provider Vodacom. The move makes Vodafone a 50%
owner of Vodacom, and allows Vodacom to pursue African,
Middle Eastern, and European markets that were
previously off limits because of shareholder agreements.
Provided that there are no regulatory snags, Vodafone's
investment will be the second largest foreign investment
in post-apartheid South Africa. End Summary.

2. (U) British-based cellular group Vodafone announced
plans to spend R15.6 billion ($2.4 billion) to gain
controlling interest over investment firm Venfin, which
owns 15% of South African cell phone operator Vodacom.
The deal will boost Vodafone's stake in Vodacom from 35%
to 50%. The other 50% of Vodacom is owned by South
Africa's monopoly fixed line operator Telkom. This will
allow Vodacom to proceed with expansion plans in Africa,
Europe, and the Middle East.

3. (U) Vodafone's move was complex and expensive. Once
Vodafone takes over Venfin, it will shed all of Venfin's
holdings except for Vodacom. The acquisition will allow
Vodacom to pursue market opportunities previously off
limits as the result of complicated shareholder
agreements preventing it from entering any country north
of the equator, such as Egypt where the government
expects to offer a third cellular license by the end of
the year. The deal with Vodafone eliminates these
restrictions.

4. (U) Vodafone's purchase of 4.6 million VenFin shares
at prices between R44.75 and R46.60 rewarded VenFin
shareholders with a 41% premium over the 30-day average
selling price. This makes Vodafone's investment the
second largest foreign direct investment since 1994.
How Vodafone will meet the government's black economic
empowerment goal of 25% equity in black hands remains
unclear.

5. (U) Vodafone's announcement came after another
British group, Barclays Bank, bought a majority stake in
South Africa's largest retail bank, ABSA, for R33
billion ($5.5 billion) in May this year. Financial
analysts said these investments point to increasing
confidence in the South African economy, now on track to
grow at 4.4% this year, the highest rate since 1988
(Reftel).

TEITELBAUM

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