Blue Label Telecoms is awaiting approval from the Competition Tribunal to gain voting control of Cell C. Despite this delay, the company has raised its economic stake in the mobile operator by an additional 10 percentage points, bringing its total economic interest to 73%.
In its interim financial results for the six months ending November 2024, which were released on Thursday, Blue Label disclosed this increase in economic interest.
In 2022, Cell C transferred its debt to a new entity called SPV5, which acquired 10% ownership of Cell C in return. Blue Label has acted as a guarantor for the debt repayment. Additionally, The Prepaid Company (TPC), a subsidiary of Blue Label that manages the group’s stake in Cell C, has pledged US$15 million to SPV5 to assist in settling the debt. This debt will be repaid in instalments between December 2024 and December 2026.
“Blue Label has provided a guarantee to the lessor for this debt repayment, while TPC is committed to funding US$15 million to SPV5 in exchange for a claim of US$38 million in SPV5, allowing it to fulfil its repayment obligations,” Blue Label stated.
On December 31, 2024, TPC disbursed the first funding tranche of US$5 million. The subsequent funding commitments are planned as follows:
- An additional US$1,5 million is due on December 31, 2026, subject to the occurrence of certain liquidity events.
“SPV5 must repay TPC the advanced amounts from any future sale of shares and/or dividends received, along with an extra US$23 million plus 50% of the fair value of its 10% ownership in Cell C, as long as the proceeds exceed US$5 million,” Blue Label explained.
“Since SPV5’s only asset is its shareholding in Cell C, repayment will depend on either disposing of these shares or the dividends accrued. Consequently, as of December 31, 2024, TPC has effectively gained an additional 10% economic interest in Cell C, limited to the repayment amount. This investment will be equity accounted, subject to the cap, alongside TPC’s existing 63.19% economic interest in Cell C.”
In December, TPC secured a loan of US$16 million from Rand Merchant Bank, set to mature at the end of this month, with an interest rate of prime plus 1%.
“TPC is in the final stages of negotiating an extension before this maturity date, which would allow for an additional 18-month period, with repayments to begin in equal monthly instalments starting March 31, 2025.”
Through TPC, Blue Label holds 49.5% of the voting rights in Cell C and is entitled to appoint four of the twelve directors, each with one vote. In January, Blue Label received approval from the communications regulator, Icasa, to take over operations at Cell C.
However, the company has waited 10 months for the Competition Tribunal to approve the transaction. The Competition Commission had already recommended the deal’s approval in April.
The tribunal, recently responding to critiques regarding the lengthy timeline for reviewing mergers and acquisitions in the ICT sector, explained: “The tribunal is obligated to conduct its hearings following natural justice principles, allowing all parties the chance to access records, request document discovery, and submit their papers, including factual and expert witness statements, before hearing the case. These procedures take time and are inherent to legal proceedings.”
Notably, from April to December 2024, 99% of reported mergers before the tribunal were addressed within the required timelines. The 2023/2024 financial year, the tribunal reviewed 94% of mergers within set timelines.
In the specific case of Cell C, the tribunal had to accommodate intervention applications from MTN, Vodacom, Pepkor (a retail group), and CellSAf (a stakeholder in Cell C). These applications were heard in July and August 2024, with all applications except Vodacom’s being granted, contributing to the review timeline’s length.
“The tribunal sets schedules that allow interested third parties to intervene and accommodate other procedural matters, as well as expert witness statements and hearing dates. These dates depend on the availability of all parties and their legal representatives and experts,” the tribunal elaborated.
