Blue Label Telecoms, which owns about 49.5% of Cell C following the mobile operator’s recent recapitalisation, looks set to make an offer to take control of the company in the coming months.
Blue Label co-CEO Brett Levy, speaking to TechCentral at the JSE-listed company’s interim results announcement on Thursday, said it’s likely to pursue such a transaction. Blue Label also wants its and Cell C’s reporting periods aligned by no later than May 2024.
Blue Label, Levy said, will make a firm decision by its financial year-end, or 31 May, about taking control of the mobile operator. He cautioned that getting the deal past regulators could take some time, though.
But, he said, “We are in no man’s land now. We have a big percentage [in Cell C] but we don’t have control, which is not an ideal position to be in. You either have to sell down or buy up, but you can’t stay in the same position.”
Levy first mooted the possibility of buying control of Cell C in a call with investors last October. At the time, he said: “We believe in this asset (Cell C)… The Blue Label board must make one of three decisions post the recap. Decision one is remain as we are – and that’s not going to be a decision. So, it’s one of two decisions: do we sell down, or do we take control?”
He also said at the time that should Blue Label move to take control of Cell C, it wouldn’t necessarily encounter significant regulatory roadblocks.
“There’s nothing that stands out from a Competition Commission point of view; and there’s definitely nothing that stands out from an Icasa point of view,” he said of the competition and telecommunications regulators.
“Everyone knows what we’ve [done] over the last seven years to save this business, and the value we could add to it if we had control of it. From a change of control [perspective] at Icasa, I think everyone would welcome it if we went this route, so everyone has stability.”
Blue Label announced on Wednesday that it had once again attached a positive valuation to Cell C – R3.1-billion (R1.5-billion for Blue Label’s 49.5% stake) – after it had previously written down the carrying value to nil. With a discount of 35% applied, the carrying value for the Cell C stake on Blue Label’s books is now about R900-million.
The company will likely revalue Cell C again in the first half of its 2024 financial year, Levy said.
He described Blue Label’s core performance during the latest six-month reporting as “solid”. On exclusions of “extraneous costs” in the current and prior period, including those related to the recapitalisation of Cell C, earnings before interest, tax, depreciation and amortisation increased by 15%. Revenue climbed to R9.8-billion from R9.1-billion a year ago, while the gross profit margin expanded from 14.93% to 15.67%.
Although core headline earnings per share (Heps) slumped to just 3.94c from 62.69c previously, Blue Label said that with the extraneous contributions related mainly to the Cell C recap and one-offs in the previous six-month period stripped out, core Heps would have climbed by 13%.