We'll fight 'corporate pirates'

Just over two years ago, on November 12 2015, Blue Label Telecoms (BLT) made a direct offer to Oger Telecoms on behalf of itself, management and staff, and a mystery investor (identified later as Net1) to collectively acquire 70% of Cell C.

BLT described the transaction as a “recapitalisation”.

The so-called recapitalisation may well be the most blatant attempt at corporate hijacking in recent South African history.

This is a strong claim, but we believe it is a fair one, which is strengthened as we continue to discover and expose more details of the deal.

Cell C would very much like government, the market, regulators and consumers to believe that this transaction is a genuine recapitalisation of Cell C.

Far from it.

No deceptive descriptions, no back-door approaches to powerful external parties, no legal contortions to keep the matter out of court and no eminent opinions on how to circumvent the regulatory authorities will help camouflage the fact that this transaction is little else than an attempted corporate heist.

Our view is that a number of organisations and a coterie of wealthy individual recapitalists will find themselves exposed to commercial and legal jeopardy – as well as substantial public opprobrium – by the time the deal unravels.

Cell C, owned 100% by 3C Telecommunications, was licensed by the Independent Communications Authority of SA (Icasa) in June 2001, making it the country’s third major cellular operator.

At the time, 3C was owned jointly by Saudi Oger and CellSAf, a South African empowerment company of which I had the honour of being a founding director.

CellSAf’s empowerment credentials contributed significantly to Cell C’s winning the licence and was viewed as a means to empower previously disadvantaged South Africans through access to spectrum, a national asset.

CellSAf, which owned 40% of 3C at the time, was one of the first truly broad-based empowerment companies involved in a large transaction.

We took out a loan, contributed R200 million to the bid and start-up costs and R1 billion of equity to the operation.

In 2005 we sold 15% of our stake, eliminating our debt and leaving CellSAf’s stake unencumbered.

It turns out that in choosing Saudi Oger, we had made a serious mistake.

Before long we were frozen out of decision making.

Board meetings ceased to be held, information was withheld and key commercial decisions were being made behind our backs.

While damaging to Cell C, some of these decisions were quite beneficial to Oger.

One example is the high-yield bonds which sucked billions of rands in interest out of Cell C – and out of South Africa.

We later discovered these bonds were almost entirely owned by the Hariri family and Oger-linked companies.

At the same time, they were forcing CellSAf, through 3C, to take on even more debt.

Clandestine agreement

We believe that some of what Oger did was also illegal, including, in 2014, entering into a clandestine agreement to sell shares in Cell C to Blue Label in exchange for cash advances for airtime.

These actions are covered in our legal challenge and in complaints to regulatory bodies.

Some of our complaints occur after the fact, for the simple reason that we were deliberately kept in the dark. The regulators, who are now investigating these issues, are faced with the recapitalists’ apparent desire to keep secret the details of the transaction.

As Oger ran into crippling difficulties internationally, the idea of a recapitalisation was born.

Partners were identified in the form of BLT, Net1 and senior executives at Cell C.

Advisers were appointed (including management consultancy McKinsey, bankers HSBC and Goldman Sachs, auditing firm KPMG and law firms Norton Rose Fulbright and Bowmans) and negotiations commenced.

Meanwhile, unaware of these machinations, CellSAf was still fighting to have its rights restored.

As to the recapitalisation, we were not consulted, informed or asked for our consent.

But we were expected, through 3C, to plug a R9 billion hole to make the deal work.

When we suggested other options to the recapitalisation, we were ignored, as we were again when we insisted that the deal should be put before regulators for prior approval.

Instead, Cell C announced a “done deal”, probably hoping that no one would notice.

Despite the obfuscation, much has emerged.

The BLT deal will reduce debt in Cell C to an enviable R6 billion for its new shareholders.

However, CellSAf will be loaded with R2.25 billon in additional debt, on top of an accumulated R4 billion in current debt which 3C owes Oger Telecoms.

We estimate that the effective 8.8% of Cell C which Oger “sold” to the Employee Believe Trust (as part of Cell C’s attempt to raise BEE to above the 30% required by Icasa to transfer control of a licence) for a nominal R10, will load the trust with debt of over R7 billion, growing to R9 billion with interest.

On the other hand, Blue Label and Net1 pay R7.5 billion for 60% of Cell C and four white, male managers pay R2 500 for 5% (worth almost R1 billion, at a recent valuation of R19 billion for Cell C by Standard Bank Securities).

Ask Cell C or Oger for detailed information regarding the recapitalisation, or to explain Cell C’s new “greater than 30%” BEE shareholding, or to clarify the financing of the deal, and they will respond that the information is confidential.

Ask them to explain why they didn’t seek prior approval from regulators and they will tell you that 78.8% of shares changing hands doesn’t constitute a “change of control”, because none of the new shareholders holds more than 50%.

Ask them whether we approved the recapitalisation, and they’ll probably respond that we didn’t have to because Oger, as a 75% shareholder can do as they please.

If they were sufficiently recapitalised, why are they on an investor roadshow?

CellSAf is of the view that anyone wanting to hand over or acquire ownership of an empowered, licensed mobile operator must explain themselves in an open court and in public hearings. Spectrum remains a highly prized national asset and we have a responsibility to ensure it is not bartered by what we deem a fleeing, bankrupt foreign investor.

We will not let opportunistic, money-grubbing executives hijack the company or corporate pirates to capture it.

Do not expect CellSAf to back down.

Mankazana is a director at CellSAf