Buy­ing Cell C ‘will boost Telkom’s in­fra­struc­ture’


PAR­TIALLY state-owned Telkom on Fri­day con­firmed that it was in talks to take-over strug­gling Cell C, which an­a­lysts said would likely re­ceive over­whelm­ing share­holder back­ing, given its po­ten­tial to boost Telkom’s in­fra­struc­ture. Telkom said it planned to ac­quire Cell C on con­di­tion that it fi­nalised its re­struc­tur­ing plan that ad­dressed its debt bur­den, which had bal­looned to about

R9 bil­lion.

“The po­ten­tial ac­qui­si­tion will be sub­ject to Cell C com­plet­ing a fi­nan­cial re­struc­tur­ing to en­sure that its gear­ing lev­els are re­duced to a sus­tain­able level as spec­i­fied by Telkom and com­mer­cial con­trac­tual re­la­tion­ships are rene­go­ti­ated to terms ac­cept­able to Telkom,”

Telkom said.

Telkom told in­vestors it had sub­stan­tially con­cluded its due dili­gence. How­ever, dis­cus­sions were at a pre­lim­i­nary stage, and the po­ten­tial ac­qui­si­tion would be sub­ject to reg­u­la­tory ap­provals. In a sep­a­rate state­ment, on Fri­day, Cell C con­firmed that it had re­ceived a non-bind­ing of­fer from Telkom.

“Cell C re­mains fo­cused on en­sur­ing op­er­a­tional ef­fi­cien­cies, re­struc­tur­ing its bal­ance sheet, im­ple­ment­ing a re­vised net­work strat­egy and im­prov­ing over­all liq­uid­ity,” Cell C said.

Cell C, which is

45 per­cent owned by JSE-listed Blue La­bel Tele­coms, said its talks for an ex­panded roam­ing agree­ment were at an ad­vanced stage.

In Au­gust, Cell C said it was talk­ing with MTN for an ex­panded roam­ing agree­ment that would help it to man­age its net­work ca­pac­ity re­quire­ments.

“In­de­pen­dent fi­nan­cial and le­gal ad­vis­ers have been ap­pointed rep­re­sent­ing the lenders and con­struc­tive dis­cus­sions on the re­cap­i­tal­i­sa­tion are un­der way with them and other stake­hold­ers in re­spect of var­i­ous pro­pos­als,” said Cell C on Fri­day.

Cell C, which is in the process of re­struc­tur­ing its bal­ance sheet and op­er­a­tions, ear­lier this year an­nounced plans to sim­plify the busi­ness model.

The di­rec­tor of pric­ing re­search at Jo­han­nes­burg-based Africa Anal­y­sis, Ofentse Dazela, said while he ex­pected the takeover to re­ceive over­whelm­ing sup­port from Telkom share­hold­ers, Telkom might have been a lit­tle bit too late in its bid for Cell C. Dazela said Telkom was clearly eye­ing Cell C’s cus­tomer base and the in­fra­struc­ture rolled out by Cell C, which would re­duce its al­most com­plete re­liance on com­peti­tor net­works.

“I do, how­ever, get a sense that Telkom is mak­ing its bid rather a lit­tle late, given that Cell has been en­gag­ing MTN for some time with the view to sur­ren­der its in­fra­struc­ture to the lat­ter. If Cell C still has an ap­petite to con­tinue with its plan to run the big­gest mo­bile vir­tual net­work op­er­a­tor in the coun­try, then there is a pretty good chance that they opt to part­ner with MTN, as the Telkom deal with prob­a­bly re­sults in an out­right ac­qui­si­tion of the com­pany,” Dazela said.

Cell C, South Africa’s third-big­gest mo­bile op­er­a­tor, lost mar­ket share to its peers MTN and Vo­da­com after the 2011 tower agree­ments and other risk-based pric­ing on cer­tain con­tracts weighed heav­ily on the busi­ness. A port­fo­lio man­ager at Cape Town­based Mer­gence In­vest­ment Man­agers, Peter Takaen­desa, said it was dif­fi­cult to re­struc­ture a com­pany in Cell C’s po­si­tion, but it was nec­es­sary for any po­ten­tial buyer.

“They do not want to in­herit oner­ous com­mer­cial re­la­tion­ships that have made the busi­ness un­sus­tain­able in the past. At least the Telkom of­fer pro­vides a ref­er­ence point for Cell C lenders and may ac­tu­ally im­prove Cell C’s chances of suc­cess in rene­go­ti­at­ing its fi­nan­cial re­struc­tur­ing,” Takaen­desa said.

Old Mu­tual In­vest­ment Group an­a­lyst Philip Short said it was im­por­tant that Cell C com­pleted the re­struc­tur­ing. “This re­struc­tur­ing will re­sult in lower debt lev­els and lower in­ter­est rates than Cell C cur­rently has,” said Short.

Telkom shares closed 2.65 per­cent lower at R55.88 on the JSE on Fri­day, while Blue La­bel closed 1.16 per­cent lower at R2.55.

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