JOHANNESBURG – Blue Label Telecoms the largest distributor of pre-paid airtime and data in South Africa, will pay R5.5 billion for a 45% stake in debt-laden mobile firm Cell C Ltd, it said on Wednesday.
The deal will give Blue Label a share of profits on a product it distributes as well as a major stake in a company facing a consumer backlash due to slow network speeds.
For Cell C, the deal is part of its efforts to pay down debt which forced it into a restructuring deal with bondholders in 2014, involving pushing back the maturity of some of its short-dated borrowing to July 2018.
Cell C, founded in 2001 by Saudi Arabia’s Oger Telecom, has struggled to compete against established South African rivals Vodacom and MTN Group.
To fund the Cell C deal, Blue Label will pay R3.5 billion from available cash and funding facilities, while R2 billion will come from an agreement with South Africa’s Net 1 UEPS Technologies, Blue Label said in a statement.
Payments processing and technology firm Net 1 is buying 117.9 million Blue Label shares for R2 billion, giving it a 15% stake in the airtime distributor.
Shares in Blue Label rose 8.9% to close at R20.20 and Net 1 shares surged 10% to R139, the two best performers on the JSE Allshare index.
Net 1 Chief Executive and Chairman Serge Belamant said the investment was the start of a strategic alliance that would enhance value for shareholders in both firms thanks to cooperation between their local and international operations.
He also said Blue Label’s 45% stake in Cell C would help all three companies involved attract more customers faster and offer cross-selling opportunities.
Blue Label Joint Chief Executive Brett Levy said the stake in Cell C will not compromise his firm’s distribution deals with other telecoms companies.
“It’s business as usual with the likes of Vodacom and MTN,” he told an investor call.
Net 1 expects to pay for the transaction through a combination of cash and debt plus the issuance of five million shares, the company said on Wednesday.
Cell C will issue new shares to staff, senior management and existing shareholders following the deal to help reduce its borrowing to a maximum of R8 billion, Blue Label said.
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