Last-minute deal reached between Blue Label, Cell C

2017-02-27 14:20 - Gareth van Zyl
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Cell C's head office in Johannesburg. (Gareth van Zyl)

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Johannesburg - Local telecommunications player Blue Label Telecoms [JSE:BLU] has reached a last-minute agreement that is expected to see it acquire 45% of the share capital of South Africa’s third largest network Cell C.

In a note to shareholders on Monday, JSE-listed Blue Label said that a “binding umbrella restructure agreement” has been entered into by Blue Label, Cell C, debt providers of Cell C, a third party investor and other relevant parties in which the maximum net borrowings of Cell C will be cut to about R6bn.

Meanwhile, a third party investor will subscribe for 15% of Cell C’s share capital at R2bn.

The announcement comes one day before the deadline to finalise the deal.

Amid this deal, Blue Label’s previously proposed 45% of the share capital of Cell C remains unchanged.

“The binding restructure agreement is subject to the conclusion of the relevant transaction agreements, which agreements are expected to be unconditional by no later than 30 June 2017,” said Blue Label.

This latest agreement comes after Telkom attempted to make a move on Cell C in recent weeks. The Cell C board, however, rejected Telkom’s offer.

Cell C is set to enter a deal with Blue Label amid growing debt obligations.

Cell C was recently downgraded to a ‘D’ credit rating by ratings firm Standard & Poor’s - the lowest junk status rating for a corporate company - shortly after withdrawing a bond placement, stating it could reduce its maximum net borrowings to less than R8bn through planned restructuring. The bond placement process was expected to reduce Cell C's existing net borrowings to R8bn.

Cell C is South Africa's third largest mobile network with approximately 24m subscribers.

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