Blue Label Telecoms, which will release its annual results today, yesterday announced that it will sell its business units to raise about R1 billion.
Joint-CEOs Mark Levy and Brett Levy are expected to present Blue Label’s later today.
In a statement, Blue Label says the funds obtained from the proposed transactions will be applied to reduce the company’s current interest-bearing debt.
The company is looking to sell its interests in Blue Label Mobile (or VAS Operations) to DNI, an investment holding company that specialises in distribution and retail for the telecommunications industry.
In addition, Blue Label’s subsidiary, The Prepaid Company, has agreed to sell its interest in 3G Mobile excluding the share capital held in and loan claims against Comm Equipment Company to DNI and together with the VAS Operations transaction.
VAS Operations provides mobile phone users with an ecosystem of services that include smartphone applications, wireless application protocol, multimedia messaging services, e-mail, location-based services, instant messaging, Web messaging, SMS and unstructured supplementary service data.
In terms of the VAS Operations transaction, Blue Label will sell to DNI 809 ordinary shares of Blue Label Mobile which will comprise 85% of the issued ordinary shares therein, and all claims on loan account that Blue Label has against Blue Label Mobile.
The company explains that the consideration payable by DNI to Blue Label in respect of the VAS Operations sale interest is R350 million plus R100 million which shall escalate at the prime rate of interest plus 2% (compounding annually in arrears) from the fifth business day after the date on which all suspensive are met and the date upon which the board of directors of Cell C resolve that Cell C passes the solvency and liquidity test set out in section 4 of the Companies Act, plus all amounts paid by Blue Label Mobile in respect of the Blue Label Mobile’s acquisition of 50% of the issued ordinary shares of each of Hyve and Mobile Content Africa Limited.
3G Mobile distributes mobile devices and handsets to major retailers and cellular network providers.
According to Blue Label, the initial consideration payable for the 3G distribution transaction will be R544 million.
It points out that the initial consideration will be adjusted by the net amount by which surplus / inadequate provision was made for bad debts, obsolete trading stock in the consolidated audited 2019 balance sheet of 3G Mobile.
The effective date of the 3G distribution transaction shall be the fifth business day after the date on which the last of the 3G Suspensive Conditions are fulfilled or waived.
In December 2017, Blue Label Telecoms successfully completed its acquisition of 3G Mobile, acquiring the remaining 52.63% of the issued share capital of 3G, for R1 billion.
Blue Label notes that it has consistently generated positive cash flows from its trading operations since its listing.
“These funds have been applied to dividend distributions, share buy-backs and investing activities, at all times ensuring sufficient surplus funds to facilitate working capital requirements,” it notes.
Over the past two years, the company says, significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that the group’s working capital requirements continued to be met.
Accordingly, it adds, the Blue Label board of directors have made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward.
The disposals thereof will not have a negative impact on the extensive distribution network that Blue Label has established and will not inhibit its distribution capabilities nor on Blue Label’s ability to achieve its strategic objectives going forward, the company says.
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