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PERCEPTIONS that prepaid mobile and electricity vouchers are mechanisms to ensure that poor people pay for goods and services may be one of the reasons why Blue Label Telecoms stock has not fared as well as expected.
This week the company announced that it has received a non-binding expression of interest for the acquisition of all its issued shares in the company – a move which has called into question the case for a standalone reseller of cellular and electricity vouchers.
“The board is engaged in discussions with the party expressing interest and will update shareholders whenever appropriate,” the company said on Wednesday in a note to investors on the JSE.
All indications are that Blue Label Telecoms can be better managed to improve returns for investors.
Founded in 2001 and floated on the Johannesburg Stock Exchange in 2007, the distributor of secure electronic tokens and services has been trading below its closing listing price of R8.60. It listed at R6.75.
While the company has grown phenomenally, establishing distribution channels in some parts of Africa, the UK, India and Mexico, its share price performance hasn’t followed the growth experienced by the business.
South African shareholders own 83% of the company.
According to Blue Label Telecoms’ latest annual report, Allan Gray owns a 20.42% stake and Shotput Investments has 15.23%, while joint CEOs Brett and Mark Levy own 10.78% and 9.81% respectively.
UK and Europe investors hold 8%, US shareholders 7% and the rest of the world 2%.
So far the only benefit for shareholders has been returns through a dividend, but they didn’t get any spoils from the share movement.
With the bid confirmed, shareholders are likely to vote in favour of the sale.
But the South African value investors, such as Allan Gray, are likely to demand a huge premium to part ways with their stakes in Blue Label Telecoms.
After Blue Label Telecoms informed the market of the non-binding bid the share price jumped 9.7% to close at R10. The upward move pushed its share price above its closing listing price of R8.60 in 2007.
Now the focus moves to unmasking the mystery bidder.
Is the expression of interest from a foreign or local bidder?
It is most likely the bidder is a foreign suitor, possibly a cellular operator with plans to gain access to Blue Label Telecoms’ strategic wider distribution network.
This may come in handy for a mobile phone operator looking for growth opportunities in South Africa and the rest of the continent.
The potential bidder could be French telecommunications group Orange or India’s Bharti Airtel –both of whom could benefit from using the South African-based resellers’ distribution network.
Blue Label Telecoms, which has benefited from high usage of prepaid mobile phones in emerging markets, resells airtime, starter packs, electricity, ticketing, financial services and value-adding services – this makes it a more attractive proposition.
Blue Label Telecoms may also have attracted the attention of private equity firms which may have identified more value in the business.
For example, they could focus on turning around the company’s problem children, which include underperforming overseas operations in Mexico and India.
Blue Label Telecoms’ businesses in the UK, India and Mexico could act as regional springboards for growth.
In fact, the bidder will be buying into Blue Label Telecoms’ long-term strategy as it positions itself for an anticipated rise in demand for prepaid vouchers and value-added services in emerging markets.
If the bid becomes a firm offer and is accepted by shareholders, the Levy brothers stand to walk away with a very fat cheque.
But one wonders if the suitor would, on acquiring the firm, ringfence a R5.21bn litigation claim against the company from the deal.
Blue Label Telecoms is involved in a bitter legal battle with Telkom over a deal with its subsidiary that went sour in Nigeria.
On June 14 2013, Telkom issued a summons against Blue Label Telecoms and other parties seeking to claim R5.21bn in damages relating to Multi-Links, Telkom’s former Nigeria business unit.
On October 3 2011, Telkom sold its shareholding in Multi-Links to Hip Oils Topco Limited. The claim relates to alleged damages suffered by Telkom arising from a super dealer agreement signed between Multi-Links and Blue Label Telecoms' subsidiary, Africa Prepaid Services (APSN).
Telkom and Multi-Links have sued Blue Label Telecoms, APSN and certain individuals - including a former senior executive of Telkom - for $724m.
That said, I am curious to find out if the Levy brothers and their executive team have been dressing up the business all along in anticipation of a possible sale. If so, the question is what happened to their entrepreneurial spirit?
- Fin24
*Gugu Lourie is a former correspondent for Thomson Reuters, Business Report, Finweek magazine and Fin24 (writing a blog titled 'Googled'). He is the editor of techfinancials.co.za. Views expressed are his own. Follow him on #twitter @LourieGugu.
