KEY THEMES
When it comes to its 45%-stake investment in Vodafone Egypt [VODE], Telecom Egypt [ETEL] has the optionality to either continue to be part of its success story or cash out on its investment, partially or entirely. Below, we pencil in the options available for ETEL, in our opinion, and the respective target price for each option:
(1) Not selling its 45% stake in VODE:
(1. A.) Without a counter bid:
Under this scenario, ETEL continues as a minority shareholder with its current stake (45%), which may push it to renegotiate with its new partner (STC) regarding dividends distribution and may prefer to enter into a put option to sell its stake in VODE to STC in the following years at a preset price, taking into account the time value of money.
- Target price: A price range between EGP12-14/share within 6-12 months.
(1. B.) With a counter bid:
Under this scenario, ETEL submits a counter bid that may be potentially equal or slightly higher than STC’s, using its right of first refusal according to its shareholder agreement with Vodafone Group [UK: VOD]. ETEL may then resort to borrowing, with VODE’s balance sheet providing it with the financial capacity. ETEL may even partner with another entity (the Sovereign Fund of Egypt perhaps) to take a piece of VODE while ETEL retains a stake of more than 50% to consolidate its financials.
- Target price: A price range between EGP10-16/share within 6-12 months.
(2) Selling its 45% stake in VODE:
(2. A.) Entirely:
Under this scenario, ETEL exits its entire stake in VODE at the same price as VOD’s deal, provided the final transaction price is appropriate for ETEL and with the submission of a mandatory tender offer by STC for ETEL’s 45% stake.
- Target price: EGP16-22/share depending on the final deal price.
(2. B.) Partially:
Under this scenario, ETEL exits its stake in Vodafone Egypt partially (e.g. sells 25% and keeps 20%) while entering into a put option to sell the remaining stake (20% in this case) in the following years, if it so chooses, taking into account the time value of money.
- Target price: EGP14-18/share, depending on the final deal price.