EcoCash Holdings Limited's shareholders will be called to vote on a transaction that involves disposing of its Financial Technology Businesses (FTBs) to Econet Wireless Zimbabwe in exchange for shares in the latter and some cash consideration.
According to an abridged circular to shareholders released by the company yesterday, the proposed transaction is a Scheme of Reconstruction. Under this scheme, EcoCash Holdings will transfer all its shares in the FTBs, valued at ZWL$509 billion (equivalent to 521,861,057 Econet Shares), to Econet. As a result, the FTBs will become subsidiaries of Econet. This will leave Steward Bank Limited as EcoCash Holdings' only remaining subsidiary.
Reasons for Reunion:
The proposed transaction comes after expectations that motivated the demerger back in 2018 were not met. The abridged circular explains that the FTBs and Steward Bank were expected to attract new investors interested in financial technologies, similar to strategies employed by other international mobile network operators like Airtel and MTN. However, adverse economic conditions since the demerger have prevented EcoCash Holdings from attracting foreign portfolio investors. This has resulted in both EcoCash Holdings and Econet remaining under the control of the same shareholders (over 90%).
The circular further states, "The obtaining situation where the Company and Econet have the same controlling shareholders means that the same group of shareholders are being subjected to duplication of resources, thus eroding shareholders' value."
An announcement by Econet also released yesterday highlights a concerning decline in the combined Net Asset Value of the entities, dropping from over US$810 million pre-demerger to a current value of less than US$450 million. Liquidity for EcoCash Holdings on the stock exchange has also dwindled. Econet believes the reunion can reverse these negative trends.
The telecommunications giant proposes to acquire the FTBs and develop them by leveraging synergies. These synergies include Econet's subscriber base of over 14 million and its established delivery channels, with the goal of fully developing the FTBs' sustainable value creation competitiveness.
The book value of the FTBs that EcoCash Holdings intends to transfer to Econet amounts to ZWL$325 billion. Since this is less than 50% of the book value of EcoCash Holdings' total assets (ZWL$931 billion), the Scheme of Reconstruction is not classified as a Major Asset Transaction for EcoCash Holdings.
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However, the total consideration measured against the market capitalization of EcoCash Holdings results in a percentage ratio exceeding 30%. Therefore, the transaction is classified as a Category 1 Transaction, requiring an ordinary resolution approval by shareholders at an Extraordinary General Meeting (EGM) scheduled for April 17, 2024.
The FTBs under EcoCash Holdings include EcoCash (mobile money), VAYA, Econet Insurance, Econet Life (micro-insurance), MARS, and Maisha Health Fund. Both companies view the disposal of the FTBs as a strategic move.
By reuniting the entities, Econet argues that it can streamline operations, improve efficiency, and offer a more comprehensive suite of products and services to its customers. The announcement by Econet states, "Once the restructuring has been finalized, some of the duplicated activities will be eliminated leading to quicker turnaround decisions and cost efficiencies."
Econet further justifies the transaction by highlighting the potential to capture a larger share of the mobile money and digital financial services market in Zimbabwe. Integrating EcoCash, the dominant mobile money platform in the country, more closely with Econet's core telecoms business could unlock new revenue streams and enhance customer loyalty.
