Net1 the mystery investor in Cell C

• Compelling business case, says Belamant • Stakes in mobile company and in Blue Label

Faced with uncertainty about its multibillion-rand contract to distribute social grants, Net1 UEPS has clinched a deal and emerged as the mystery buyer of a 15% stake in cellphone operator Cell C.

Net1’s venture into the mobile phone industry will also lead to it owning a 15% stake in Blue Label Telecom. Blue Label will be the majority shareholder of Cell C after a R5.5bn deal to acquire 45% of the mobile phone operator is finalised.

Net1 will also buy a 49.6% stake in DNI-4PL Contracts, a distributor of starter packs and prepaid airtime for Cell C.

The announcement follows an agreement between Blue Label and Cell C’s bondholders to convert some debt into equity. Cell C’s total debt is estimated at R23bn, which will be cut to R6bn after the recapitalisation.

The deal indicates a vote of confidence in SA’s third mobile network operator.

“The combination of the diverse technological, commercial and logistical capabilities of Net1, Blue Label, Cell C and DNI4PL provides a substantial and compelling business case for us,” said Serge Belamant, chairman and CEO of Net1.

Net1’s mobile technologies include a mobile virtual card that offers secure mobile-based payments, as well as mobile banking and prepaid value-added services. It also runs banking platform Easypay.

An analyst, who asked to remain anonymous, said Net1’s deal to buy shares directly into Cell C could be an attempt to block other potential bids.

“They were probably worried that the deal may not go through. It does not make sense to buy a direct stake in Cell C since they were already buying into Blue Label,” said the analyst. Blue Label and Net1 were probably hoping to stabilise Cell C and sell it later, he said.

The deal with Cell C will allow Blue Label and Net1 to expand their technology products and services into Cell C.

The analyst said Cell C’s positioning in the market was a “difficult one” as it would have to plough in a lot of capital to grow and protect its market share.

The market was not growing anymore, he said.

“They have to take market share from someone and that may prove difficult, given that their competitors are spending north of R10bn [on capital projects],” said the analyst.

The remaining 40% in Cell C may be shared by black equity holder CellSaf, Oger Telecom and management and staff. It is likely, however, that the allocation of 15% to Cell C staff will be substantially diluted.

On Monday, CellSaf described the employee share scheme as “bogus”. Blue Label co-CEO Brett Levy was unable to explain the final shareholding, but insisted employees would still be allocated shares. Management is likely to still receive its 10% allocation.

Cell C’s spokeswoman, Karin Fourie, said that the details of the revised structure would be revealed “when the time is right”.