Blue Label Telecoms has received the green light from competition authorities to take control of SA’s fourth-largest mobile operator, Cell C.
In May, Blue Label announced plans to spin off Cell C as part of the group’s restructuring in a move that would result in all four of SA’s largest telecom companies being listed on the local bourse.
Last week, the group said it had entered into a binding implementation agreement relating to the prelisting restructuring, which encompasses various transactions aimed at optimising Cell C’s capital structure and balance sheet in preparation for a separation and listing of the Cell C ListCo business.
Clawing back debt
The prelisting restructuring includes a number of elements.
The various parties are seeking to implement a structure to facilitate a separation and potential listing of a newly incorporated holding company of Cell C on the JSE main board.
In essence, Blue Label is converting more than R13bn worth of Cell C into equity.
Blue Label has recapitalised Cell C twice, in 2017 and 2022. The effect of those transactions was the prepaid specialist taking on a mountain of debt to keep the mobile provider running. The upcoming listing of Cell C gives Blue Label a mechanism to claw back some or all of this money.
Competition authorities have also given the green light for Cell C to acquire Comm Equipment Company (CEC), a company specialising in services for contract customers, from Blue Label Telecoms.
The deal is part of Cell C’s push to internalise its entire customer operations, from marketing and supply chain to billing and collections, putting in place another piece that will allow the cellphone company to be more self-sufficient.
Changes in equity
Blue Label holds a direct shareholding of 49.53% of the voting rights in Cell C. However, through additional transactions, including the acquisition of shares from other special purpose vehicles (SPVs) that had debt obligations to TPC, Blue Label has an effective economic interest of 70% in Cell C.
Last week, the Competition Tribunal approved Blue Label’s bid to take control of Cell C, receiving conditional approval to acquire an additional 4.04% shareholding in the mobile provider from Cedar Cellular Investments 1. This pushes up Blue Label’s stake, held through its subsidiary The Prepaid Company (TPC) to 53.57%.
The effect of the prelisting transactions would take the economic interest to 93%. Having received approval from the tribunal, that economic interest becomes voting control.
Business Day understands that Blue Label aims to sell down its stake to between a quarter and half of Cell C, post the listing.
Long-held IPO ambition
Cell C has long harboured ambitions of going public — a plan first floated by former CEO Jose Dos Santos in 2018. However, this plan came to nought as the company struggled to make a profit — making its initial public offering (IPO) a challenging prospect for investors.
The company has struggled to make a profit since it opened in 2001. It had been laden with long-term debt of R8.7bn, prompting Blue Label and Lesaka Technologies (formerly Net1), which previously had a 15% stake, to write down their combined R7.5bn investment to nil.
Four years after this writedown, Blue Label said in February 2023 it had revalued the Cell C investment.
In August, the group reported a reversal of investment impairment of R1.559bn relating to the initial impairment of R2.5bn on Blue Label’s investment in Cell C, originally recognised in May 2019.
Of the total impairment, R962.5m was reversed in November 2022, with the balance of R1.559bn reversed this year, in line with an improvement in Cell C’s equity valuation.
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