Buffet Consortium to help turn Cell C’s fortunes

By Dineo Faku Time of article published Feb 25, 2019

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JOHANNESBURG - Blue Label Telecoms said on Friday that a consortium had agreed to become a minority shareholder in Cell C, which has underperformed in a highly competitive market as it limited its exposure to South Africa’s third-biggest mobile operator.

In the surprise announcement, Blue Label, the 45percent owner of Cell C, said the Buffet Consortium, backed by billionaire Jonathan Beare, would become a minority shareholder in the mobile operator, in an effort to change its fortunes.

“With Buffet support, the Cell C balance sheet will be bolstered and ensure Cell C’s sustainable growth for the future,” Blue Label said.

The announcement came hours after Blue Label said Cell C’s chief executive, Jose Dos Santos, would step down at the end of February from the post he had occupied since 2014.

Dos Santos is expected to become a consultant, offering strategic advice to Cell C’s board chairperson, Kuben Pillay. “In this role, he will be involved in the delivery of Cell C’s strategic intent, which includes the reshaping of Cell C’s debt to ensure the company’s continued sustainability,” the company said.

Cell C’s indebtedness has weighed heavily on Blue Label’s balance sheet.

On Friday, Blue Label flagged that Cell C would have a negative impact on its financial results in the six months ended November, saying earnings a share would show a loss of up to 15.74cents a share, down from 167.43c a share.

Headline earnings a share would swing to a loss of 18.78c a share, from 166.68c a share, the company said.

“Although the core businesses of the Blue Label group generated positive growth, the once-off underlying financial adjustments relating to Cell C had a negative impact thereon,” the company said.

Blue Label rose 3.81percent to close at R5.45 a share on Friday as the market viewed the investment from the Buffet Consortium as a lifeline to struggling Cell C.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said Dos Santos’s resignation likely indicated that the Buffet Consortium had preconditions, including changing the strategy and chief executive.

Takaendesa said that Cell C had to address underlying problems that have hampered its prospects.

“Cell C is in a difficult position. It has had some of the best chief executives, including Allan Knott-Craig, who also founded Vodacom. They have tried many things but nothing has changed,” said Takaendesa.

Blue Label became Cell C’s majority shareholder through a R5.5billion investment to recapitalise the company in 2016 in an effort to pay down debt.

“They (Blue Label) are de-risking by diluting shareholding in case Cell C asks for money again,” he said.

In recent months, reports emerged that Telkom Mobile was interested in acquiring Cell C.

“It makes sense for Cell C to merge with Telkom Mobile, which has not agreed on a price with Cell C shareholders because of gearing problems,” said Takaendesa.

Asief Mohamed, the chief investment officer at Aeon Investment Management, said the resignation of Dos Santos was not unexpected.

“Cell C has not been performing satisfactorily for some time. What was a surprise and unexpected was the new investment by the Buffet Consortium directly into Cell C. Blue Label’s management did not indicate that Cell C needed additional capital until the listing of Cell C in a year or two’s time,” said Mohamed.


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