Safaricom to buy M-Pesa for Sh1.3 billion

Safaricom #ticker:SCOM and its South African parent company, Vodacom, are set to enter into negotiations with British firm Vodafone to buy rights to the M-Pesa service in a deal estimated to be worth Sh1.3 billion ($13.4 million).

The telecommunication firm’s CEO, Bob Collymore, who Thursday announced an extension of his tenure by one year, told Reuters news agency the purchase of M-Pesa rights will yield significant savings in royalties paid to Vodafone and expand the mobile money service to new African markets.

Safaricom pays two percent of its annual M-Pesa revenue to Vodafone. Income from M-Pesa stood at Sh75 billion ($741 million) in Safaricom’s financial year ended March.

Vodacom, a South African telco operator that owns 35 percent of Safaricom, pays five percent in an intellectual property fee to Vodafone from its M-Pesa business, which is mainly in Tanzania.

Vodafone has a five percent stake in Safaricom while the government controls 35 percent shareholding.

“More important than the significant savings is about us determining the future, the roadmap of M-Pesa because at the moment the roadmap is determined by Vodafone,” Mr Collymore told Reuters.

Mr Collymore’s tenure, which was due to end this August, has been extended for one more year till August 2020.

He said the extension is to allow him to compensate for his nine-month absence last year due to medical leave.

“I owe the company about a year because I was sick for a year so I’ve extended by another year. I will be here until 2020 to continue hopefully serving the company and the country,” said Mr Collymore in response to questions from reporters on the sidelines of The Africa Shared Value Summit held in Nairobi.

The extension is now seen as providing room for the firm to settle on his successor.

Safaricom’s share price yesterday remained largely unchanged following news of Mr Collymore’s extended tenure, with the counter edging up slightly.

The share price closed at Sh26.15 yesterday a rise of 0.19 percent from Sh26.1 at close of trading on Wednesday.

Following the tenure’s extension, Mr Collymore said he intends to focus on the company’s e-commerce sector, which he noted has not been performing as well as expected in recent years and boost the agri-business unit.

“In the next 12 months that I will be the CEO, we want to get e-commerce working better and scale up agri-business, which is one of the country’s major sectors in generating revenue,” he said.

Safaricom net profit grew by 14.7 percent to Sh63.4 billion in the financial year ended March 2019 on the back of strong M-Pesa and mobile data performance, marking the seventh straight year of a growing bottom-line.

This marks the second extension of Mr Collymore’s term at the helm of Safaricom.

Mr Collymore, 61, a Guyana-born British citizen, took charge of Safaricom in 2010 on a three-year contract after the company’s founding CEO, Michael Joseph, retired.

He had his term renewed for another three years and was expected to end in August 2016, but was renewed for two more years till August this year.

The initial extension was seen as a pointer to the telco’s preference for stability rather than change as it navigated a difficult operating environment characterised by a changing regulatory environment.

Citi analysts have projected that Safaricom’s revenues could face headwinds arising from subdued private sector growth and launch of new mobile payment products amid a proposed regulation of consumer prices in the telecoms sector. The telco even then remains profitable.

The company’s success has been built on innovation and savvy marketing that has allowed it to profitably grab a dominant market share in voice, SMS, data and mobile money services while rivals try to lure customers with cheaper prices.

Mr Collymore took medical leave in October 2017 to receive specialised treatment. He resumed work in August last year after a nine-month medical leave, revealing he had battled acute myeloid leukaemia, a type of cancer that inhibits white blood cell production.

The cancer has since gone into remission, Mr Collymore said on his return.

During his absence, Safaricom chief financial officer Sateesh Kamath had taken a primary role to fill the CEO’s position supported by Joseph Ogutu – the company’s director of Strategy and Innovation. Mr Ogutu had according to the telco, taken charge of Safaricom’s day-to-day operations until Mr Collymore’s return.