Kenya Court Voids Safaricom Stake Sale; Vodacom Plans Appeal

What happened

On Tuesday in Nairobi, High Court judges Francis Gikonyo, Roselyne Aburili and Tabitha Ouya nullified the government's sale of a 15% Safaricom Plc stake to Vodacom Group Ltd., calling the divestiture unconstitutional and unlawful. The court declared the transaction "invalid, null and void" and ordered the shares returned to the government of Kenya. The ruling underscored that "The divestiture involved the acquisition of effective control," adding, "It was a takeover. This detail of information was not disclosed to the public."

The court's findings

The bench found the sale breached public-finance management rules and did not fully meet public-participation standards. The panel noted that crucial documents - such as the agreement to sell shares and a contract covering dividend entitlements - were withheld from the public, and that the government offered no rationale for choosing Vodacom outside a competitive tender. The judges held that taking upfront payment for future dividends breached the constitution by depriving citizens of their rights, and that placing a strategic national asset under the control of a non-Kenyan owner created national-security risks.

The court noted the parties failed to seek an exemption from takeover rules, the record lacked proof of approval by the Competition Authority, and transaction advisory services were procured from KCB Investment Bank Ltd. in breach of national laws. Should the appeal fail, the financially strained Kenyan government could be required to return roughly $1.9 billion already paid for the shares.

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Legal and market fallout

Vodacom said by text message, "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." The company agreed in December to buy an additional Safaricom stake, lifting its holding to about 55% from almost 40%, which cut the Kenyan Treasury's interest to 20%. Vodacom says the deal closed on June 30 after the Court of Appeal lifted a conservatory order and all conditions precedent were met.

Traders reacted fast. Vodacom shares dropped nearly 4% in Johannesburg, the biggest fall since July 27, before clawing back some losses. Safaricom stock gained as much as 2.2% in Nairobi.

The money side and why investors should care

Proceeds totaled about 204.3 billion shillings ($1.6 billion), with an additional 40.2 billion shillings raised by packaging and selling the rights to dividends yet to be paid. President William Ruto's administration is advancing privatization plans to bankroll initiatives to boost a $141 billion economy, including a $39 billion buildout that covers railways, upgrades to airports, roads, power lines, dams, and irrigation works that he says will generate jobs while cutting transport and energy costs. The buildout is expected to draw on proceeds from asset sales, including Kenya Pipeline Co., alongside private sector co-investment.

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