Blue shares drop on Cell C’s R4bn deal

Blue Label Telecoms, a reseller of prepaid mobile and electricity vouchers, sees stock drop after announcing plans to buy 35% stake in Cell C, the country’s third largest mobile phone operator. By Gugu Lourie


Blue Label’s plan to spend R4 billion buying the 35% stake in Cell C met the market’s ‘disapproval’ on Thursday, with the stock dropping 6.02% at R10.15 by 3.53pm on the JSE.

The transaction is for the stake, which is currently owned by Dubai-based Oger Telecom that last month was engaged in talks to sell the mobile phone company to South Africa’s Telkom.

Considering that Blue Label is acquiring 35% of Cell C it seems “the acquisition price and the valuation of Cell C is quite high,” says an analysts “Therefore, some investors may not be happy with the price that Blue Label is paying for buying the stake. Furthermore, some investors may be concerned with the airtime voucher deals that Blue Label has with Cell C’s competitors, Vodacom and MTN.”

But Blue Label assured the market on Thursday that it has received significant support in writing from its shareholders for the proposed Cell C deal.

Telkom walked away from buying Cell C after concluding a due diligence, which might have uncovered issues that the management of the fixed-line telephone group were not happy with. But the official statement from Telkom was that talks collapsed after not reaching an agreement with Oger Telecom on how to value Cell C.

“Through Telkom’s engagement with Oger Telecoms in relation to Cell C, it has become clear that there is a difference between the parties on the assessment of value of the proposed transaction. As no agreement has been reached, Telkom and Oger Telecoms today agreed to end all discussions,” Telkom informed investors last month.

Market talk has suggested that Oger Telecom was asking a R20 billion price tag on Cell C.

However, a Cape Town analyst, who wanted to remain anonymous, last month after Telkom walked away from Cell C, said: “We believe Telkom has discovered some nasty issues when they were conducting their due diligence on Cell C assets and they used the price issue as a sticking point to avoid painting the company as a vulnerable asset.”

The management on behalf of the employees of Cell C has also submitted a binding offer to co-invest in the mobile phone operator with Cell C’s current shareholder, 3C Telecommunications and Blue Label. Cell C employees will then hold around 30% of the total issued share capital in Cell C at a cost of R2.5 billion at the conclusion of the restructuring programme.

If the recapitalisation programme is successful, 3C Telecommunications will hold 35% of Cell C, Management and staff 30% and Blue Label 35% of the ordinary shares in the company.

 

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