Johannesburg - Blue Label Telecoms announced yesterday that it intended to buy a 45 percent stake in Cell C for R5.5 billion in a move that would help the operator reduce its debts.
The deal is part of Cell C’s efforts to pay down debts, which last year forced it into a restructuring with bondholders involving a three-year maturity extension to July 2018.
Blue Label’s chief executive, Brett Levy, said it had decided on the venture as it saw a number of opportunities arising from consolidation and infrastructure sharing themes in the local telecoms industry.
Levy said the opportunities provided multiple synergies in the procurement chain, distribution network, as well as products and services.
“We are positive about a turnaround in Cell C’s financial and operational performance and a restructured Cell C offers compelling growth and prospects, including a liquidity event such as listing in the future,” Levy said.
Blue Label is a virtual and physical distributor of secure electronic tokens of value, as well as a provider of transactional and value added services.
The group is also a distributor of prepaid airtime and it operates in South Africa, Mexico and India.
The announcement helped Blue Label to climb to a two-month high on the JSE yesterday, gaining more than 5.28 percent in the afternoon to trade at R19.65 per share. The shares closed 8.89 percent higher at R20.20.
The group, which processes about 5 billion transactions per annum, reported revenue of R26.2bn for the year to May while earnings before interest, tax, depreciation and amortisation (Ebitda) were R1.24bn and earnings per share were 1.04c.
Last year Cell C announced that it had raised €240 million (R4bn) on the bond market to take the total amount of eurobonds it secured to €400m.
Sustain operations
The company said money needed to be paid back in three years’ time.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the transaction would give Cell C a stronger balance sheet to sustain its operations.
Takaendesa said even though the deal would boost Cell C’s balance sheet to sustain their operations for at least the medium term, he believed the country’s third-largest cellular operator had to move exceptionally to gain market share in a saturated local mobile telecoms market.
“It therefore remains to be seen if Blue Label Telecoms has allocated its capital to the best opportunity.
“Blue Label also needs to make sure it does not sour its important distribution relationships with Vodacom and MTN as it is now also effectively a competitor to them,” Takaendesa said.
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