Haruna Mohammed Maiga
12 August 2008
Following Government's decision to privatize Ghana Telecom (GT) with the offloading of majority shares to a strategic investor, an Inter-Ministerial Committee, comprising members that also took part in the privatization of WESTLE, appointed Ecobank Development Corporation (EDC) through a competitive selection process as transaction advisor, to undertake the privatization exercise.
The process of selecting a strategic investor for GT then began after Government announced its intentions about the company in its November 2005 Budget Statement. The entire process was strictly subjected to the requirements under the Procurement Act in consultation with EDC.
From an initial list of fifteen (15) companies from around the world that responded to the published advertisements and public announcements, the transaction advisor short listed six potential bidders and duly notified them to provide detailed Technical and Financial Proposals for consideration.
These were 1. Belgacom Teylium, 2. Etisalat Telecommunications, 3. France Telecom,
4. Portugal Telecom, 5. Singapore Telecommunications (SingTel), and 6. Vodacom and Telekom (South Africa).
By the close of the deadline on 2nd November 2007, the following three companies responded and submitted their proposals: 1. France Telecom 2. Portugal Teleccom, and
3. Vodacom (South Africa). A fourth company, SingTel, withdrew from the exercise at the last moment.
After the valuation of the proposals, all three companies passed with their Technical Proposal except that their financial offers fell short of the expectation of government's reserve transaction price of US$1.075 and headline price of US$1.5 billion.
The final offers were:
a. US$520 million for France Telecom with a capital expenditure of US$213.8
b. US$484 million for Portugal Telecom with a capital expenditure of $547
c. US$346 million for Vodacom S.A. with a capital expenditure of US$699.3
The point should be noted that capital expenditure in this case refers to the proposed amount of money which the companies are prepared to further invest in GT if their bids were successful.
This unsatisfactory state of affairs was communicated to the companies concerned in December 2007 and thereafter, the Ministry of Communications in consultation with the transaction advisor, revoked the exclusivity granted to the short-listed companies and extended invitation to other interested investors to submit proposals for consideration and negotiations on one to one basis.
Telecom South Africa subsequently made an offer of US$658 million for 66.67% of equity stake in GT based on their assumption that the enterprise value of GT is US$1,216 and net debt of US$230 million. This purchase offer too was considered to be lower than government's expectation and the company was accordingly informed.
It was at this stage that Vodafone (UK) in February 2008, also showed interest and made the following proposals among others based on headline enterprise value for GT as US1.5 billion:
1. US667 million for 66.67% of equity stake in GT.
2. US$700 million for 70% of equity stake in GT
3. US$800 million for 80% of equity stake in GT
In the light of the dissatisfaction with the Telecom South Africa bid, Vodafone was invited for negotiations on their bid proposal which after all was the highest offer given by any company with the view to assessing the potential to encourage them to raise their bid offer.
In May 2008, Government received an updated offer from Vodafone to acquire 70% interest in GT for a total consideration of US$900million on a debt-free, cash-free basis. By the offer, Vodafone implied an enterprise value of US$1,286 billion for 100% of GT.
The acquisition and management of the National Communication Backbone was included in this offer. This was acceptable to government because considering the indebtedness of GT and the deteriorating circumstances of the company, the declining valuation figures necessitated the aggregation of other state communications infrastructure that also required huge investment to build maintained.
It was considered that following the unavailability of funding for the implementation of the second phase of the National communications Backbone Project, it would be easier for the project to be completed by the buyer if it were made part of the GT transaction.
Government has supported the construction of the fiber optic transmission network which is being undertaken in two phases covering over 4000 kilometers with a concessionary loan facility of 30 million dollars. Government is currently seeking an additional 70 million dollars for the second phase.
In this regard negotiations on the draft Sale and Purchase Agreement (SPA) of GT has given consideration that includes the measures required to commit Vodafone to complete the second phase of the fiber optic backbone.
The fiber optic backbone would be maintained as an open-access, non-discriminatory network and the subsidiary management company to be considered in the new GT would include Government ownership to enable its open-access character to be monitored at all times.
The entire privatization exercise has been openly explained to the management and staff of GT who have been very cooperation and supportive in the expectation of a rejuvenated GT which would secure the jobs of the over 4200 employees while creating more opportunities for more Ghanaians to be employed in a more successful GT.
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