Levy bros partner with Dubai’s Oger in Cell-C
The plan would see Cell C listing on the JSE in the next few years, thus unlocking value for the shareholders and staff. This comes in the wake of Blue Label Telecoms tabling a clever offer to acquire a 35 per cent stake for R4 billion.
The proposed acquisition forms part of a significant restructuring at Cell C. This will result in a reduction of over 50 per cent of the company’s debt and all employees being given a stake in the business.
Blue Label plans to pay for its stake by using a mix of cash and new debt.
RIGHT: Blue Label’s Mark, left, and Brett Levy are previous Absa Jewish Achiever winners.
While the R4 billion injection implies a valuation of Cell C of a mere R11,4 billion, way under the R22 billion it’s Dubai-based parent, Oger Telecom, was reportedly seeking from Telkom, a Cell C spokesman said the figure represents Blue Label’s share of the equity value in Cell C and does not include the debt value.
The restructuring plan will place an enterprise value of around R19 billion on the business.
Current controlling shareholder Oger Telecom has also promised to inject fresh capital, to the tune of many billions of rand, while at the same time reducing its stake from 75 per cent to roughly 27 per cent. Black empowerment partner CellSAf will also see its stake diluted, from 25 per cent to 9 per cent.
CellSAf is not expected to contribute any fresh capital.
Crippling debt a noose
Cell C’s crippling debt has long been a noose around the operator’s neck, and is believed to have been a pivotal factor in a number of suitors, including South Africa’s Telkom and Sweden’s TeliaSoneria, walking away from the deal.
The company’s debt will now be cut to R6-8 billion after the proposed restructuring.
Most significantly, say pundits, Cell C’s debt – currently 90 per cent of which is dollar-and-euro-denominated – will be converted to rand, reducing the volatility of the company’s balance sheet.
Blue Label has been one of the primary distributors for Cell C’s products over the years and the new deal is expected to become effective on June 1, 2016.
LEFT: Cell C’s CEO Jose Dos Santos will stay on for at least five years
Following up on a Sunday Times story, TechCentral.co.za published “Inside the Cell C, Blue Label tie-up” this week and reported that the CEO of Cell C, Jose Dos Santos, will stay on in his position for at least the next five years as part of the restructuring agreement.
Dos Santos said that that despite the company’s high levels of debt, the company has never defaulted on any of its debt repayments.
Market share growth
In recent years, the company’s prospects have improved markedly. Under the leadership of Dos Santos and his predecessor, Alan Knott-Craig, Cell C has grown its market share (measured by Sim cards) from 9 per cent to 22 per cent, mainly by targeting the price-sensitive prepaid segment with aggressive tariff plans. The company is also operationally profitable.
Management is hoping that the plan to include staff in the restructuring will incentivise them and help the company make further inroads against its two main rivals, Vodacom and MTN.
In terms of the proposed restructuring, Cell C staff will acquire 30 per cent of the company for R2,5 billion, which will be raised by the company on behalf of employees through new debt. This is included in the R6,8 billion debt target agreed to – with the loan to be paid back through dividend flows over a period of years.
Blue Label co-CEO Mark Levy said the plan to reduce Cell C’s debt “makes it an interesting business to be part of”.
Relationship with Vodacom, MTN
Industry pundits and market analysts expressed concern about the impact the deal could have on Blue Label’s relations with Vodacom and MTN.
Levy played down these fears, saying “co-opetition” (competing while co-operating) is commonplace.
Blue Label has “no intention of breaching the contracts” it has with the other operators “or breaking these relationships that we have developed for so many years,” he said.
Irnest Kaplan of Kaplan Equity Analysts is not so sure. “While the deal may look exciting, I think the key question is whether it will negatively affect Blue Label’s relationship with Vodacom as a customer,” said Kaplan.
BMI-TechKnowledge’s MD, Denis Smit, said that: “This deal is basically a refinancing proposal that will significantly improve Cell C’s balance sheet.” Smit added that the fact that there will be a significant investment by the staff is “very noteworthy and it shows management’s faith in the enterprise.”
“We think this will also assist Cell C to participate more [meaningfully] in future spectrum auctions based on the stronger balance sheet. This can only be good for the company.”
Dos Santos said binding offers will be submitted to the boards of both Cell C and its immediate parent, 3C Telecommunications, within the next 10 days. He said he does not expect the deal to face any regulatory hurdles and added that the company will continue to meet black empowerment shareholder requirements after the transaction, despite the dilution of CellSAf’s stake.