Kenya’s High Court voids Vodacom’s $1.5bn Safaricom takeover

Kenya’s High Court has voided Vodacom Group’s purchase of a 15% government stake in the country’s largest telco, Safaricom, putting a KES 204.3 billion ($1.58 billion) deal at risk less than three months after it closed. 

The ruling could unwind one of Kenya’s biggest corporate transactions and force the government to return a stake it had already sold as part of a wider plan to raise money from state assets.

On Tuesday, a three-judge bench ruled that the sale was unconstitutional, saying the government withheld key information from the public, the cabinet, and parliament, and misrepresented the nature of the transaction. The court ruled that what was presented as a partial divestment gave Vodacom control of Safaricom and amounted to a takeover.

The court declared the sale invalid and ordered the 15% stake returned to the government on behalf of Kenyans. 

“A declaration is hereby made that the partial divestiture of the 15% of the Government of Kenya shares in Safaricom was a camouflage merger or acquisition and takeover of Safaricom PLC and is in contravention of the Constitution and the law,” the court ruled. 

Vodacom’s ownership of Safaricom rose to 55% from 39.9% after the transaction. The increase included the government’s 15% stake and a further 5% effective interest acquired through Vodafone Kenya. The court also struck down the process used to approve the sale.

Parliament held hearings in 30 counties, but key agreements, including the share purchase agreement and the deal covering future dividends, were not made public. The court ruled that the hearings fell short of the constitutional standard for meaningful public participation.

“In light of our findings above, we hold that there was no reasonable, meaningful and purposive public participation in respect of the divestiture,” the court said in its ruling. 

The court also questioned why the government sold the shares directly to Vodacom rather than through a competitive process to identify a strategic investor. It rejected the government’s justification for the KES 34 ($0.26) per share price, based on an independent valuation by KCB Investment Bank, which the state described as carrying a market premium.

The judges also challenged the decision to raise KES 40.2 billion ($311 million) by selling the rights to future dividends from the government’s remaining 20% stake in Safaricom.

The court found the arrangement traded a long-term income stream from a public asset for an upfront payment, raising concerns about what future governments and taxpayers would lose.

National security added another layer to the ruling. Safaricom operates the mobile money platform M-PESA, supports government payment systems, and provides infrastructure for election transmission. The telco also holds personal data belonging to millions of Kenyans.

“Even with regulatory safeguards, there is no guarantee that would prevent foreign and external influence or interference with the governance systems, personal security and data,” the court added.

The court ruled regulatory safeguards from the Communications Authority (CA) and the Office of the Data Protection Commissioner (ODPC) could not replace a national security assessment before effective control of such infrastructure moved to a foreign company.

The government said it will appeal at the Court of Appeal, but the High Court declined to suspend the judgment immediately and directed the government, Vodacom, Safaricom and the Attorney General to file an application seeking a stay.

The sale was approved in March but was delayed by litigation. The Court of Appeal cleared the transaction to proceed in June but ruled that it could still be reversed if the court later found the sale unlawful. 

The latest ruling leaves Vodacom’s majority control of Safaricom, along with the KES 244.5 billion ($1.89 billion) in proceeds and future dividend rights tied to the transaction, facing a new legal battle.

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