Blue Label to acquire 45% stake in Cell C

Jason McGee-Abe
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South Africa’s Blue Label Telecoms is to acquire a 45% stake in debt-laden mobile operator Cell C for a total fee of 5.5bn rand ($400m), effective November 18, 2016

Blue Label - Cell C

The deal will increase the 35% stake the distributor of pre-paid airtime and data in South Africa, which has acted as one of the primary distribution channels for Cell C for a number of years, had announced it would acquire on 10 December 2015. 

Blue Label is to pay 3.5 billion rand from “available cash and funding facilities”, while the remaining 2 billion rand will come via a vendor consideration placement from Net 1 UEPS Technologies, which has agreed to subscriber for 117.9 million Blue Label shares, giving the payments processing and technology firm a 15% stake in Blue Label.

Net 1’s chief executive and chairman Serge Belamant said the investment was the start of a strategic alliance that would enhance value for shareholders in both firms thanks to co-operation between their local and international operations. It will make the payment through a combination of cash and debt plus the issuance of five million shares.

For Cell C, which has faced consumer backlash over slow network speeds, the deal will help to pay down debts after bondholders had forced it into a restructuring deal in 2014 which included pushing back the maturity of some of its short-dated borrowing to July 2018.

“The implementation of the Cell C recapitalisation will result in its existing net borrowings, comprising any contractual obligations pertaining to monies borrowed, including shareholder loans, less cash and cash equivalents (“Net Borrowings”), being reduced to a maximum of R8.0 billion, as at the effective date,” a Cell C statement read.

“The recapitalisation provides the company with a sustainable growth platform,” added Cell C’s CEO Jose Dos Santos in a separate statement. “This is a transformational transaction for Cell C.”

Cell C, wholly owned by 3C Telecommunications, which in turn is owned by Oger Telecom, was founded in 2001 and currently has a network consisting of more than 4,800 sites. However, it has struggled to compete with Vodacom and MTN Group in the country.

Cell C management and staff will subscribe for 25% of the company and 3C Telecommunications, previously Cell C’s largest shareholder, will hold the remaining 30%.

Financial and legal advisers involved in the deal for Blue Label and 3C Telecommunications include: Investec Bank Limited, Goldman Sachs International, Houlihan Lokey, Werksmans Inc and Bowmans. GTB