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Kenya’s High Court has nullified Vodacom Group’s acquisition of a 15% government stake in Safaricom, placing a KES 204.3 billion ($1.58 billion) transaction in jeopardy less than three months after its completion.
The decision could reverse one of Kenya’s largest corporate transactions and require the government to reclaim the shares it sold as part of a broader strategy to generate revenue from state-owned assets.
Court declares Safaricom stake sale unconstitutional
A three-judge bench ruled that the transaction violated Kenya’s Constitution after finding that critical information was not disclosed to the public, Cabinet or Parliament. The judges also determined that the government mischaracterised the nature of the deal.
Although the transaction was presented as a partial divestment, the court found that it effectively transferred control of Safaricom to Vodacom and therefore constituted a merger, acquisition and takeover.
The court declared the sale invalid and ordered the 15% stake to be returned to the government on behalf of Kenyan citizens.
“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 judges ruled.
Following the transaction, Vodacom’s stake in Safaricom increased from 39.9% to 55%. The increase comprised the government’s 15% holding and an additional 5% effective interest obtained through Vodafone Kenya.
The court also invalidated the approval process used to facilitate the sale.
Public participation and transaction transparency questioned
The ruling criticised the level of public participation surrounding the divestment. Parliament conducted hearings across 30 counties, but key transaction documents—including the share purchase agreement and an agreement concerning future dividend payments—were not disclosed to the public.
The judges found that the process did not meet the constitutional threshold for meaningful and informed 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 stated.
The court further questioned why the government sold the shares directly to Vodacom instead of using a competitive process to identify a strategic investor.
It also rejected the government’s explanation for the KES 34 ($0.26) per-share price, which was based on an independent valuation by KCB Investment Bank and described by the state as including a market premium.
Future dividend rights raise concerns
The judges also examined the government’s decision to raise KES 40.2 billion ($311 million) by selling rights to future dividends from its remaining 20% stake in Safaricom.
According to the court, the arrangement exchanged a long-term revenue stream from a public asset for immediate funds. This raised concerns about the potential financial implications for future administrations and taxpayers.
The wider transaction reportedly involved KES 244.5 billion ($1.89 billion) in proceeds and future dividend rights, all of which could now become subject to further legal proceedings.
National security concerns over foreign control
National security was another major issue in the court’s decision. Safaricom operates M-PESA, Kenya’s leading mobile money platform, supports government payment systems and provides infrastructure used for election transmission.
The company also manages personal data belonging to millions of Kenyan citizens.
“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 said.
The judges held that safeguards administered by the Communications Authority and the Office of the Data Protection Commissioner could not substitute for a national security assessment before effective control of critical infrastructure was transferred to a foreign company.
Government prepares to appeal ruling
The Kenyan government has indicated that it will challenge the decision at the Court of Appeal. However, the High Court declined to immediately suspend the judgment and directed the government, Vodacom, Safaricom and the Attorney General to file an application seeking a stay of execution.
The transaction had received approval in March but was delayed by legal challenges. In June, the Court of Appeal allowed it to proceed while maintaining that the sale could still be reversed if a subsequent judgment found it unlawful.
The latest ruling therefore leaves Vodacom’s majority control of Safaricom, as well as the funds and future dividend rights associated with the deal, facing another round of legal and regulatory uncertainty.
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