(From left to right) Sakhile Dlamini and Kgolo Qwelane, RMB Corporate Finance Transactors involved in the Vodacom BEE transaction

More than 85 000 black investors and approximately 8 500 current and past employees will soon reap the benefits of Vodacom – South Africa’s biggest mobile operator’s recent ZAR16.4-billion Broad-based Black Economic Empowerment (BEE) transaction. This BEE transaction will be the largest ever in the Information and Communication Technology (ICT) sector in South Africa to date. Rand Merchant Bank (RMB) played a pivotal role in advising, structuring and arranging the funding for this landmark transaction. 

The new YeboYethu BEE structure involves the amalgamation of the combined interests of Vodacom’s existing BEE partners (Royal Bafokeng Holdings, Thebe Investment Corporation and YeboYethu) with a newly formed Employee Stock Ownership Plan (ESOP). This new BEE structure will replace the old ZAR7.5-bn Vodacom (Proprietary) Limited (Vodacom SA) BEE ownership scheme that was announced in 2008, and will remain listed on the BEE segment of the JSE.

“The new ESOP (funded by a ZAR1.05-bn contribution from Vodacom) will acquire YeboYethu shares from the existing YeboYethu ESOP and subscribe for additional YeboYethu shares. YeboYethu will then exchange its shareholding in Vodacom SA for a 6% share in Vodacom Group,” say Kgolo Qwelane and Sakhile Dlamini, two of the Corporate Finance Transactors from RMB who worked with teams from Leveraged Finance, Legal, Credit, Syndications & Distribution and Sponsor Services on the complex Vodacom BEE transaction.

Solutionist Thinking

RMB Corporate Finance is no newcomer to the advising, structuring and funding of BEE deals. “We have one of the largest advisory teams in Africa and a deep understanding of the complex nature of BEE transactions. RMB proposed an innovative solution that met the objectives of both Vodacom and the Vodacom SA BEE shareholders, which stands to benefit over 85 000 black investors and approximately 8 500 current and past Vodacom employees.”

Dlamini explains that the new BEE transaction is a relatively complex set of inter-conditional steps, involving a combination of third party and vendor financing, reinvested equity from existing BEE partners, and facilitation from Vodacom.

“We were able to structure a black-controlled investment vehicle that will provide significant benefits to both investors and portfolio companies. One of the biggest deliverables of this transaction was the unwinding of the existing BEE transaction – set to deliver approximately ZAR7.12-bn of value, or 6.4 times the original capital that BEE shareholders invested into the 2008 transaction.”

The fact that the existing BEE shareholders will reinvest ZAR3.86-bn of the value realised from the previous deal into the new BEE transaction, is a significant recommitment of black capital and indicates a strong vote of confidence from existing BEE shareholders in achieving further growth from investing in Vodacom,” adds Qwelane.

Upfront special dividend

“The remainder of the value will be returned to BEE shareholders in the form of an upfront special dividend of ZAR3.26-bn, which amounts to 2.9 times of the original capital invested into the 2008 deal. This liquidity event is an important feature of the transaction in order to ensure Vodacom’s BEE shareholders do secure a substantial liquidity event, which is likely to enhance the trading and marketability of YeboYethu shares,” says Dlamini.

“RMB is proud to have played a part in this landmark transaction for Vodacom. The ICT sector is one of the most promising sectors for future growth and development in Africa. We are confident that the 10-year funding term will ensure that Vodacom can count YeboYethu as a BEE investor until September 2028. Once implemented, the new BEE transaction will increase Vodacom’s effective BEE ownership to approximately 20%,” concludes Qwelane.

YeboYethu unpacked

  • RBH and Thebe exchange their Vodacom SA shareholding for shares in YeboYethu
  • YeboYethu declares a ZAR3.26-bn special dividend (or ZAR73 per YeboYethu share) to its shareholders
  • The new ESOP acquires YeboYethu shares from the existing YeboYethu ESOP and subscribes for additional YeboYethu shares
  • YeboYethu exchanges its shareholding in Vodacom SA for shares in Vodacom Group
  • YeboYethu issues ZAR9.91-bn preference shares to third party banks and Vodacom at very attractive pricing of approximately 69% of prime
  • YeboYethu uses the proceeds to subscribe for new shares in Vodacom at a ZAR1.95-bn discount