This listing will probably only come through in 6 to 8 years time. With Knott Craig gone Vodacom has lost a valuable asset but Telkom will also be out of the picture as well which will finally enable Vodacom to pursue Knott Craig's long-term desire of expansion into Africa. In the domestic market Vodacom has 55% market share, this market is already pretty saturated with 90+ percent penetration. Although MTN is first in the venturing out into Africa, Vodacom has massive cash generating capabilities and the backing of its parent company which will provide ample resource to take on MTN in the rest of Africa.
There are two separate transactions here. First is the Empowerment transaction which is just in respect of the South African business, "Vodacom SA", so international expansion will not be an issue. The prospectus is out and this will take place in the fourth quarter of this year. The second is the possible unbundling of (probably) 37.5% of Vodacom Group from Telkom. This is contingent on Vodafone acquiring the 12.5% of Vodacom Group that they have, reportedly, offered R18.75 billion for. This may look like an offer of R150 billion for 100% of Vodacom Group, but it isn't due to the control premium being paid - one extra share will give them control and the right to consolidate 100% of the results (up from the current proportionate consolidation of 50%). If this goes ahead, it will probably be this year - if not, it seems unlikely that such a political decision will not be taken in 2009 or 2010 (i.e. until the new government is firmly in control), so Vodafone and the public will have to wait another three years or so. Opening prices - based on EV/ historical EBITDA of about 7 times, Vodacom SA may be worth R100bn at a stretch. In my view this overstates value as growth has slowed right down and I see R90 billion as fair value. The international businesses must be worth close to R20 billion, giving the Group a value just short of R110 billion. If the control premium paid by Vodafone is about 10%, their R18.75 billion is made up of about R6 billion control premium and about R12.5 billion for their 12.5% - valuing Vodacom Group at R110 billion (including 10% premium) and implying about R90 billion for Vodacom SA which looks about right to me. The "Empowerment" deal for Vodacom SA is priced at R120 billion less a generous (?) 10% discount. Plus you don't get real shares and can't trade them for 10 years. The only redeeming feature is the vendor finance, but I'm not sure cheap finance is a good reason to buy an over-priced asset.