All options on the table for Cell C
Parent firm denies it’s a forced seller as Telkom walks away from deal
AS Telkom walked away from buying Cell C this week, the mobile operator’s parent, the Dubai-headquartered Oger Telecom, said a sale was not the only option under consideration.
Although talks are continuing with other, unnamed suitors, Oger Telecom deputy CEO Mazen Abou Chakra said in an exclusive interview with Business Times that the company was happy with Cell C’s “strong performance”, especially in the past year, and would not sell the asset unless the deal is in the best interests of Cell C.
Oger Telecom, he said, was not a forced seller.
Telkom told shareholders on Thursday that it had “agreed mutually” with Oger Telecom to terminate the talks, sending its share price rallying by more than 8%.
Senior sources close to both companies said the deal fell apart mainly because the parties could not get anywhere close to agreeing on a valuation, and not because Telkom uncovered something unexpected during a due diligence investigation.
Telkom CEO Sipho Maseko said earlier in the week that buying Cell C would transform the company from a distant No 4 player in South Africa’s mobile telecommunications market into a credible No 3 able to take the fight to bigger rivals Vodacom and MTN.
Although Telkom must clearly now reconsider its strategy, Maseko said the company’s mobile arm was able to survive on its own. The problem is it does not have the benefits of scale of the big incumbents.
Meanwhile, Chakra said Telkom’s decision to walk away from the talks had not changed Oger Telecom’s review of Cell C’s future.
Whatever decisions are taken, Cell C’s management team must be involved, he emphasised.
“We have a good business today in Cell C, with great management, and for us management is our partner, so whatever we are going to do, they are going to be part of what we do as a shareholder, as Oger Telecom.”
Cell C is led by Jose Dos Santos, who Chakra praised for the way he has run the business since taking the reins from the former CEO, Alan KnottCraig, last year. Knott-Craig stepped down after suffering a stroke in November 2013.
“The performance of the company has been extremely good,” Chakra said. “If you look at all of the parameters of Cell C today, it is a much healthier company.”
Oger Telecom, he said, had received a number of offers for Cell C, from both local and international suitors.
He said Oger decided earlier this year to review its options for Cell C after regulators in South Africa admitted that there had been “market failure” in the telecoms sector and that this disadvantaged the industry’s smaller operators.
Specifically, changes to the mobile termination rates regime — where Cell C and Telkom Mobile would receive fewer “asymmetry” benefits from Vodacom and MTN for calls placed between the operators’ networks — prompted the review. “The market failure has not been addressed,” he said. “Our solution is to look at our alternatives.”
It’s about not losing the momentum of Cell C, so we need to take a decision [soon]
The alternatives include selling Cell C outright, or remaining fully invested, or a combination of these options.
Chakra denied speculation that Oger Telecom was a forced seller. “It’s not like we have to sell the business because there is a payment due. We have refinanced all of our debt. Rather, it’s about not losing the momentum of Cell C, so we need to take a decision [soon].”
He declined to reveal how much debt Cell C has on its balance sheet; some reports have pegged it at about R14-billion. “What I can tell you is we don’t have any issues. We have a clear runway. We don’t have any pressure from our capital structure.”
In July this year, ratings agency Standard & Poor’s removed Cell C from a watch list for a possible downgrade after Cell C secured $4.7-billion (about R66-billion) in long-term debt with international banks to fund future capital investments.
Standard & Poor’s said Cell C had “ample liquidity to cover its current capital spending and debt maturity needs”.