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Vodacom in talks to take subscribers from struggling Cell C

Cell C and its biggest shareholder, Blue Label Telecoms, are battling to service R9 billion in debt.
 

Vodacom Group is in talks with Cell C about taking on the smaller rival’s contract-paying mobile-phone customers, a move that would strengthen its position as South Africa’s telecom market leader, according to people familiar with the matter.

The unit of the U.K.’s Vodafone Group Plc would gain just over 1 million high-paying subscribers from the deal, said the people, who asked not to be identified as the discussions are ongoing. The talks are at an early stage and could yet fall apart, they said.

Cell C and its biggest shareholder, Blue Label Telecoms, are looking at ways to cut costs and strengthen the balance sheet as they battle to service R9 billion of debt. Transferring the customers to Vodacom would attract a fee and free Cell C from the cost of servicing clients, including handset subsidies and credit checks, said the people. The carrier could also cut jobs and close some stores after slimming down operations, they said.

Representatives for Vodacom and Blue Label declined to comment. A spokeswoman for Cell C said the carrier doesn’t respond to speculation.

Blue Label shares rose as much as 2.4% to R3 in Johannesburg on Tuesday, the highest in more than a month.

Cell C generated about R3.6 billion in revenue from its post-paid customers in the year through May, about 30% of sales from mobile-phone subscribers. The company will be left with those who pay as they go, who don’t spend as much on average as those with contracts. The resulting smaller business would also include Cell C’s broadband customers.

Vodacom has about 5.8 million post-paid subscribers in South Africa, meaning a successful deal would see it leapfrog MTN Group Ltd. with 5.9 million and increase its overall lead in the market.

In November, Cell C rejected a takeover offer from Telkom SA that would have combined South Africa’s third- and fourth-largest mobile-phone companies. It remains in negotiations with a local investment firm called Buffett Group, which could trigger its second recapitalisation deal in four years.

© 2020 Bloomberg L.P.
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The Competition Commission will not allow Vodacom to take over the Cell C post paid book. It will lessen competition.

A Telkom takeover of Cell C will rather strengthen competition, resulting in three strong players, instead of two.

This company is like the proverbial ‘poisoned chalice’, look to what happened to the share price of Telkom after it foolishly with good intention thought it could make a deal to save it. The share price went down to a price that I probably purchased Telkom for when it was on its way recovering from the Great Recession. I will be surprised if they acceed to Vodacom’s approaches. But soon when the Sheriff comes to attach stuff for collection purposes they will start ‘getting it’ by then it will be too late to ‘get a good and decent price’ for Cell C.

End of comments.

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