Vodacom to challenge Kenyan High Court’s decision nullifying 15% Safaricom stake purchase

Vodacom has announced that it will appeal the Kenyan High Court decision that reversed its earlier 15% acquisition of Safaricom in the $1.9 billion deal. 

In a new development on Wednesday morning, Vodacom told Bloomberg that it will counter the ruling at the Court of Appeal.

“As interim steps, Vodacom will lodge an appeal against today’s decision with the Court of Appeal and will also apply for a stay pending the determination of the appeal,” it said. 

In addition, Vodacom said it will also seek a pause of the ruling while the matter is heard in the Court of Appeal. 

Provided the appeal is unsuccessful, the Kenyan government would have to refund the $1.9 billion it already received for the stake sale. This would be a massive blow to the government looking to fund public infrastructure and pay off debts with the funds. 

A ruling on Tuesday by Judges Francis Gikonyo, Roselyne Aburili and Tabitha Ouya at the Kenyan court ordered that the 15% stake in Safaricom Plc be returned to the government. It ruled that the sale violated public-finance management laws.

“Critical transactional documents such as the share-purchase agreement and a dividend rights purchase pact weren’t disclosed for public scrutiny, while the state didn’t explain in court why it settled on Vodacom as a buyer without a competitive selection process,” the judges said on Tuesday.

“The divestiture was undertaken in contravention of the Constitution and the law and was therefore “invalid, null and void,” the judge noted, adding that “The 15% shares are hereby restored to the Government of Kenya.” 

The development means that the earlier sale of Safaricom’s 15% stake that the government owns to Vodacom is now illegal. The Kenyan High Court said the divestiture was done against the Constitution and did not involve public participation, as the 15% share belonged to the people of Kenya. 

Also read: Safaricom shareholders to vote on Vodacom’s right to appoint CEO after takeover.

Up to speed on the Vodacom – Safaricom stake sale

In December, Vodacom agreed to raise its stake in Safaricom from 40% to 55% by buying 15% of the Kenyan government’s shares in Safaricom. This then reduces the Kenyan government’s share to 20%.  The deal also ensures that it buys Vodafone International Holdings’ remaining 12.5% stake in Vodafone Kenya, becoming its sole owner.

The sale raised about 204.3 billion shillings ($1.6 billion), along with an additional 40.2 billion shillings ($300 million) from the securitisation of future dividends.

The stake sale was pivotal for the government. It stood as the centre of how President William Ruto’s government plans to fund a significant chunk of public spending.

With limited room to borrow more or raise taxes further, Kenya has turned to selling stakes in state-owned assets, including Safaricom and Kenya Pipeline Company, to finance infrastructure projects under Ruto’s $39 billion development plan. The government wants to build railways, airports, roads, power lines, dams, irrigation, and cut transportation costs.

While the deal was initially blocked by the Kenyan High Court, the Court of Appeal overturned that decision, ruling that public interest demanded the sale be made without any delay.