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Final terms announcement for the recapitalisation of Cell C and renewal of cautionary announcement
Blue Label Telecoms Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/022679/06)
Share code: BLU ISIN: ZAE000109088
(“Blue Label” or the “Company”)
FINAL TERMS ANNOUNCEMENT FOR THE RECAPITALISATION OF CELL C AND RENEWAL OF
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Blue Label shareholders (“Shareholders”) are referred to the announcement released by Blue Label on the Stock
Exchange News Service of the JSE Limited on 10 December 2015, in which the Company announced that it had
offered to participate, in conjunction with other investors, in the recapitalisation of Cell C Proprietary Limited (“Cell
C”) in terms of which Blue Label would contribute R4.0 billion to Cell C by way of a subscription for approximately
35% of Cell C's total issued share capital following the conclusion of Cell C's recapitalisation programme.
The board of directors of Blue Label, 3C and Cell C are pleased to announce the finalised terms of the Cell C
recapitalisation programme.
Blue Label, through its wholly owned subsidiary The Prepaid Company Proprietary Limited ("TPC"), has agreed
with Cell C, 3C Telecommunications Proprietary Limited (“3C”), Albanta Trading 109 Proprietary Limited (“MS15”)
and senior management of Cell C (“MS10”) (collectively, the “Cell C Shareholders”), to participate in the
recapitalisation of Cell C, which, if successfully completed, will result in TPC holding 45% of the issued share
capital of Cell C (the “Proposed Transaction”), for a total subscription consideration of R5.5 billion (“Subscription
Consideration”).
The implementation of the Cell C recapitalisation will result in its existing net borrowings, comprising any
contractual obligations pertaining to monies borrowed, including shareholder loans, less cash and cash equivalents
(“Net Borrowings”), being reduced to a maximum of R8.0 billion, as at the effective date by way of:
- the subscription by TPC for shares comprising 45% of Cell C’s total issued share capital following the
conclusion of the Cell C recapitalisation for a subscription consideration of R5.5 billion;
- the subscription by MS10 for shares comprising 10% of Cell C’s total issued share capital following the
conclusion of the Cell C recapitalisation;
- the subscription by MS15 for shares comprising 15% of Cell C’s total issued share capital following the
conclusion of the Cell C recapitalisation; and
- the subscription by 3C for shares comprising 30% of Cell C’s total issued share capital, for a subscription
consideration equal to an amount which will result in Cell C’s Net Borrowings being reduced to a maximum
of R8.0 billion at the time of receipt by Cell C of the respective subscription considerations payable by each
of Blue Label, through TPC, MS10, MS15 and 3C.
2. OVERVIEW OF CELL C AND RATIONALE FOR THE PROPOSED TRANSACTION
With the introduction of a new management team in 2012, Cell C has succeeded in providing consumers with
market-leading products and services. To support these products and services, Cell C has invested significantly in
its network infrastructure. This renewed focus on enhancing the quality of its network, broadening distribution
channels and improving customer touch points has delivered a positive turnaround in Cell C's financial and
operational performance, with the subscriber base increasing from approximately 9 million subscribers in 2012 to
in excess of 25 million subscribers to date.
Cell C’s network, currently consisting of more than 4,800 sites, addresses South Africa's core voice segments, with
98% of the population covered. Cell C also offers 3G, LTE and LTE-A data services to subscribers and it continues
to invest in its network and LTE rollout in order to capture the substantial growth opportunity that the South African
market offers.
Blue Label has, for a number of years, acted as one of the primary distribution channels for Cell C. This has
resulted in the development of a strong relationship between Blue Label and Cell C. The Proposed Transaction
provides a compelling value proposition to Blue Label, as well as to Cell C and its customers, affording both
companies the opportunity to realise synergies in product distribution, and positioning Blue Label to benefit from
the improved operational and financial performance that the combined platform will create. The transaction
structure allows 3C to remain invested and participate in the value creation arising from this new strategic
relationship between Cell C and Blue Label.
3. PURCHASE CONSIDERATION AND SIGNIFICANT TERMS
3.1. Purchase Consideration and funding
Blue Label, through TPC, will settle the Subscription Consideration of R5.5 billion, as follows:
- R2.0 billion via a vendor consideration placement ("Vendor Consideration Placement") with NET1
UEPS Technologies Inc, through its South African subsidiary Net1 Applied Technologies South
Africa Proprietary Limited, at a price of R16.96 per share, which represents a 10% discount to the
30 business day weighted average traded price, in terms of paragraph 5.62 (1) of the listings
requirements of the JSE Limited (“Listings Requirements”) **; and
- R3.5 billion from available cash and funding facilities.
**For more detail in this regard, reference should be made to the press announcement published on 5 October
2016 by NET1 UEPS Technologies Inc.
3.2. SIGNIFICANT TERMS OF THE PROPOSED TRANSACTION
Following the implementation of the Proposed Transaction, the relationship between TPC, MS10, MS15 and 3C
as shareholders of Cell C will be governed in terms of a written shareholders’ agreement and the memoradum of
incorporation of Cell C. The salient terms of the aforesaid shareholders’ agreement include, inter alia:
- the right for the other shareholders to “tag along” in the event of certain disposals by TPC of Cell C
shares;
- TPC has been granted the right to cause the other shareholders in Cell C to “drag along” and sell a
proportional number of their Cell C shares in certain circumstances;
- should 3C dispose of 15% or more of the entire issued share capital of Cell C to TPC, MS10 shall have
the right to require TPC to purchase a proportional number of its Cell C shares; and
- subject to certain conditions, 3C or MS10 shall have the right to trigger and implement a listing of Cell
C’s shares on a recognised stock exchange.
Full details of the Proposed Transaction will be included in the transaction circular to be posted to shareholders.
4. EFFECTIVE DATE
The effective date of the Proposed Transaction will, subject to the fulfilment or waiver of all conditions precedent,
be 18 November 2016.
5. CONDITIONS PRECEDENT
The Proposed Transaction is subject to, inter alia, the fulfilment (or waiver, where applicable) of the following
conditions precedent:
- approval by Blue Label Shareholders;
- obtaining exchange control approval by the Financial Surveillance Department of the South African
Reserve Bank, and any other regulatory approvals if and to the extent required by law;
- 3C and TPC obtaining the required funding for the subscription by them of their shares in Cell C;
- Cell C successfully completing a requisite bond placement process which, taking into account the
amounts payable by 3C and TPC for their shares in Cell C, would result in the net borrowings of Cell C
being no greater than R8.0 billion;
- TPC confirming that it is satisfied with the composition of the net borrowings of Cell C;
- none of the requisite licences of Cell C having lapsed, been revoked, permanently suspended or
cancelled; and
- all of the transaction documents necessary to implement the Proposed Transaction becoming fully
unconditional in accordance with their terms.
6. FINANCIAL EFFECTS OF THE ACQUISITION
The financial effects of the Proposed Transaction on the historical results of the Company are in the process of
being finalised. A further announcement in this regard will be released in due course.
7. IRREVOCABLE COMMITMENTS
The Company has obtained irrevocable undertakings from Shareholders representing approximately 51.71% of
the Company’s Shareholders to vote in favour of the Proposed Transaction as well as the Vendor Consideration
Placement.
8. CATEGORISATION
The Proposed Transaction is classified as a category 1 transaction in terms of the Listings Requirements, which
requires Shareholder approval. A circular convening a general meeting and providing further detail of the Proposed
Transaction (including the Vendor Consideration Placement) will be circulated to Shareholders in due course.
9. RENEWAL OF CAUTIONARY ANNOUNCEMENT
The financial effects of the Proposed Transaction on the historical results of the Company are in the process of
being finalised, and a further announcement will be released in due course. Accordingly, Shareholders are advised
to continue to exercise caution when dealing in the shares of the Company until a further announcement is made.
By order of the board
Sandton
5 October 2016
Financial Adviser and Sponsor to Blue Label Legal Adviser to Blue Label
Investec Bank Limited Werksmans Inc
Financial Adviser to 3C Telecommunications Legal Adviser to 3C Telecommunications
Goldman Sachs International Bowmans
Houlihan Lokey
Date: 05/10/2016 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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