Blue Label Telecoms is "absolutely confident" its plans to buy a 45% stake in mobile operator Cell C will meet regulatory approvals.
During a conference call this week, Blue Label joint-CEO Brett Levy said the company has taken extensive legal advice on the deal and is confident it has done everything needed to satisfy authorities and shareholders.
"When a company spends R5.5 billion and your market cap is R14 billion, you have got to know we have crossed all of the t's we have dotted all of the i's and we are not 100% sure of the deal, we are 150% sure of the deal," he says.
On 5 October, Blue Label confirmed it would invest R5.5 billion to gain 45% of Cell C's total issued share capital as part of a proposed recapitalisation of the telco. Blue Label originally planned to invest R4 billion to gain 35% of Cell C but says an opportunity arose over the past couple of months to up the stake.
At the same time, Blue Label entered into a share subscription agreement with Net1 UEPS, whereby Net1 bought a 15% stake in Blue Label for R2 billion.
"It allowed us to get the money to strengthen our own balance sheet and up our stake in Cell C to 45% for R5.5 billion, without having to raise additional funds and without having to leverage our balance sheet," according to Levy.
Joint-CEO Mark Levy says the deal is considered a category one transaction by the JSE and there are "certain regulatory hurdles or frameworks one has to jump through". This includes shareholder approval.
Blue Label plans to release an information circular around 20 October, which will convene a general meeting and provide further details of the proposed transaction. Both CEOs are, however, confident all of the necessary approvals from shareholders and authorities will be attained.
Ownership structure
The planned recapitalisation of Cell C was announced in December 2015 and is now expected to be implemented by 18 November 2016. The proposed recapitalisation will reduce Cell C's net debt to approximately R8 billion and enable it to continue to deliver on its growth strategy in a sustainable manner.
Blue Label is participating in the recapitalisation, through its wholly-owned subsidiary The Prepaid Company (TPC), and when the restructuring is complete, TPC will hold 45% of the issued share capital of Cell C. The management and staff of Cell C will subscribe for 25% of the issued capital and 3C Telecommunications will hold the remaining 30%.
Currently, 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 BEE partner CellSAf; and 15% by Lanun Securities SA, a subsidiary of Saudi Oger.
Brett Levy says when the restructuring is complete, Cell C's empowerment status will have improved to being between 32% and 36% black-owned. He called this "a feather in the cap of the restructuring".
Compelling collaboration
Brett Levy says Blue Label views the deal structure in three parts.
"The first part of the deal is actually a defensive deal. We do a lot with Cell C. They are a great part of our revenue today and if ever we were able to own 45% of Vodacom or MTN it would be for the same reason. It's a defensive reason. You are buying a revenue stream going forward into the future. You are protected because as they grow, you will grow."
Secondly, Blue Label sees the investment as a good commercial deal in terms of tapping into revenue streams that are outside of the norm of what the company usually does, while the last part is pure equity value.
"So when you look at it - defensive, commercial revenue and equity - the three things all stack up individually to do the deal but when you have all three in one basket, well then it makes the deal extremely compelling."
Levy says buying into Cell C will not change anything in terms of the current distribution agreements Blue Label has with other telecoms operators.
"It's business as usual for us for the likes of Vodacom and MTN. It's extremely important for us to maintain our relationships with them and we will. In fact, we will strengthen our relationship of distribution and consumers, and have a lot more to offer them. We obviously have a lot to offer Cell C, and [as to] Blue Label's main strategy of being a neutral aggregator, nothing changes. We are still a neutral aggregator of all products, of telecoms products and other products from electricity, to ticketing and bill payments.
"So all along the same vision of Blue Label exists, we just now have an anchor tenant of a network called Cell C which we believe in tremendously."
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