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Blue Label-Cell C deal 'on track'

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 25 Aug 2016
Blue Label joint-CEO Brett Levy says the Cell C deal is "all on track" despite a few hiccups in the deal's timing.
Blue Label joint-CEO Brett Levy says the Cell C deal is "all on track" despite a few hiccups in the deal's timing.

Blue Label Telecoms says its plan to acquire a substantial stake in mobile operator Cell C is on course.

"It's all on track, no surprises, but I guess a few hiccups just in timing, but we really are excited about the acquisition," joint-CEO Brett Levy told journalists yesterday during the company's results presentation for the financial year ended 31 May.

In December 2015, Blue Label revealed it planned to buy a 35% stake in Cell C for R4 billion, as part of the mobile operator's recapitalisation plan. At the time, the companies said they expected the transaction to come into effect in June this year, but so far this has not happened.

"What we really learned is that deals of this magnitude take a lot longer, and cost a bit more, than you think. We did explain to everyone that it was a reshuffle of a balance sheet of R19.5 billion to around R6 billion to R8 billion so that is a big reshuffle," according to Levy.

Blue Label believes the transaction is compelling "both from an investment and commercial perspective".

"We have done it for a few reasons ? some defensive reasons ? also for us to obviously be part of a network going forward and overall to have an equity advantage in the future in the growth of Cell C. So commercially, in terms of what we can do with it, and of course, equity investing in a company that we believe will be a successful company, in its own right, into the future," he says.

A large part of Blue Label's business is the distribution of prepaid airtime vouchers for all of SA's mobile operators. Joint-CEO Mark Levy told ITWeb that "nothing is going to change" in terms of this part of the business once the Cell C deal goes through.

"We have long-term agreements with all of the operators and we have no intention of breaching those agreements, which is very important to state, because I think when everyone originally heard about the deal, they panicked.

"A good way to explain it is that when you go to a multi-channel retailer, they have their no-name product and they sell other people's products ? so there is no logical reason why you can't sell your own product and other people's products," he says.

Recapitalisation plans

The Cell C deal will see a complete restructuring of the company's capital, with the aim to reduce the operator's net debt from the high double-digit numbers to a maximum of R8 billion or less when implemented.

Besides Blue Label's 35% buy-in, the restructuring would also see Cell C management and staff gain a 30% stake in the telco at a cost of R2.5 billion. Cell C's current shareholder, 3C Telecommunications, will own the other 35%.

A snag in the process was a court application from Cell C's black economic empowerment partner, CellSAf, which in March filed papers in the South Gauteng High Court in an attempt to begin liquidation of Cell C's holding company.

At the moment, Cell C is 100% owned by 3C Telecommunications, which in turn is 60% owned by Oger Telecom South Africa, a division of Saudi Oger; 25%-owned by CellSAf; and 15% by Lanun Securities SA, which is a subsidiary of Saudi Oger. If successful, the restructuring would dilute CellSAf's ownership to just 9%.

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