The tripartite takeover of South African number three operator Cell C could soon include a fourth shareholder, TelecomFinance understands.
The tripartite takeover of South African number three operator Cell C could soon include a fourth shareholder, TelecomFinance understands.
The company’s proposed new owners – Blue Label (JSE:BLU) (35%), Cell C management and staff (30%), and current 100% holding company 3C Telecommunications – are sounding out potential buyers of a 15% stake, which would enable the company to reduce its net debt to R6bn (US$394m).
It is thought that the new shareholder would likely be a local player, such as a private equity firm, institutional investor or financial house.
As part of any deal, current 75% owner Oger Telecom will be responsible for reducing the net debt to a maximum of R8bn (US$532.3m), lead buyer Blue Label said in its statement last Thursday. Cell C’s current debt, thought to be in the mid-teen billions, would likely be refinanced, either by existing lenders or new lenders.
Blue Label, which describes itself as the country’s leading distributor of prepaid airtime and electricity, said it had submitted a conditional binding offer worth R4bn (US$266.1m). Cell C staff and management would contribute another R2.5bn (US$165.4m).
Investec is acting as financial adviser to Blue Label, while Werksmans is legal adviser.
Goldman Sachs and Houlihan Lokey are in the meantime advising Oger, which has had legal advice from Bowman Gilfillan. Cell C’s management and staff are not working with an external adviser.
Blue Label said Cell C’s board of directors would meet soon to consider the offer, which, pending stock market approval, is expected to close on 1 June 2016. Oger and CellSAF, the black empowerment group holding a 25% share, are expected to approve the deal by the end of the year.
The Competition Commission and sector regulator ICASA, whose recent reviews of telecom transactions have been both lengthy and stringent, will not need to approve the deal.
Financing and rationale
Blue Label is expected to finance its part of the purchase using a majority of cash and inventory, converting existing commercial arrangements with Cell C into equity, with a smaller part of the payment to come from debt.
Describing the deal as a “step-up” from a commercial partnership to a transaction, the buyer said it was attracted to Cell C because of its significant investment in network infrastructure: “This renewed focus on enhancing the quality of its network, distribution channels and customer touch points has resulted in a positive turnaround in Cell C’s financial and operational performance,” raising its subscriber base from approximately 9 million in 2012 to the current 22 million.
Furthermore, Cell C’s network, “currently consisting of more than 4,800 sites, addresses South Africa’s core voice segments, with 98% of the population covered. Cell C also offers 3G and LTE data services to subscribers”, Blue Label said.
Blue Label, which is also present in India and Mexico, said that, during its time as one of Cell C’s primary distribution channels, the two companies had developed a strong relationship. It noted the deal’s “compelling value proposition…through vertical integration affording both companies the opportunity to realise synergies in product distribution, and positioning Blue Label to benefit from the improved operational and financial performance that the combined platform would create”.
Blue Label, which has a market cap of R6.9bn (US$425.3m), said its H2 2015 profits were on track for a 20% increase on the same period last year, when gross profits reached R788m (US$51.6m).