Regulators must protect CellSAf in brawl over Cell C
JSE-listed Blue Label Telecoms is embroiled in a dispute with empowerment partner CellSAf over accusations of asset stripping at Cell C. In short, CellSAf, which has a 25% stake in Cell C, is arguing that Blue Label, which wants to increase its 49.53% stake to a controlling 53.57% interest, is trying to “hijack” the mobile operator.
The bone of contention lies in the proposed transfer of control of Cell C’s telecom licences, including valuable spectrum, to Blue Label’s subsidiary, The Prepaid Company (TPC). Last month, Cell C sought permission for the move from the Independent Communications Authority of South Africa (Icasa).
Not surprisingly, Nomonde Mabuya, director of CellSAf, has filed a formal objection to this with the telecom regulator.
Mabuya asserts that Blue Label cannot seize absolute control, particularly over the spectrum licence, without engaging other shareholders. The director of CellSAf warned that if the transfer was allowed to go ahead “CellSAf will be left with nothing”.
However, Brett Levy, co-CEO of Blue Label, rejects these claims. He says his company’s bid for a majority stake has been misconstrued. “We are a shareholder of a company, and we are applying for control.”
This is not the first clash between Cell C shareholders. In 2017, CellSAf, led by Zwelakhe Mankazana, lodged a complaint with the Competition Commission, accusing Blue Label and JSE-listed Net1 (now Lesaka Technologies) of orchestrating a takeover bid to secure control of Cell C.
The commission concurred, stating that Blue Label had indeed acquired control of Cell C. “After assessment of the above submissions by CellSAf and engagement with Cell C, the commission has taken the view that there has been an acquisition of control of Cell C by Blue Label,” the commission ruled.
Fast forward to the present, and the proposed transfer of Cell C’s spectrum and licences has rekindled the battle between shareholders. The stage is now set for the commission to possibly declare the recapitalisation of Cell C by Blue Label and Lesaka Technologies a merger, which would pave the way for a buyout offer to minority shareholders.
This would leave CellSAf exposed. Intriguingly, Icasa’s stance on the matter has varied. In August 2017, it initially signalled that the recapitalisation triggered regulatory provisions: “The Cell C recapitalisation transaction — on the face of it — triggers the provisions of section 13 of the Electronic Communications Act and ought to have been filed as an application for change of control of the licensee.”
Surprisingly, three months later, Icasa changed tack. A Cell C statement at the time said: “[Icasa confirmed] Cell C followed the correct process in the notification of its recapitalisation transaction and that it had complied with all applicable regulations.”
The about-turn raises questions about the validity of Icasa’s decision.
Looking back, the conviction of Icasa chair Rubben Mohlaloga in January 2018 for fraud and money laundering added an extra layer of complexity and speculation about the legitimacy of rulings made at that time.
Mohlaloga remained in his post for almost 12 months after his conviction. In mid-February 2019, the Pretoria specialised commercial crimes court sentenced him to 20 years in prison, and he was finally removed as chair.
Adding to the saga, in December 2017 CellSAf laid a complaint about the restructuring of Cell C with the BroadBased BEE Commission, which seemed to fall on deaf ears.
The lack of action raises concerns about the commitment of a state organ purportedly created to protect B-BBEE companies. Is the B-BBEE Commission turning a blind eye to a potential reversal of black ownership at Cell C?
In this high-stakes corporate drama, one thing is clear: Blue Label must not be permitted to assume control of Cell C without just compensation for its empowerment partner, CellSAf.
As the shareholder battle for control of Cell C intensifies, it again falls on state organs — Icasa, the Competition Commission and the B-BBEE Commission
— to safeguard the interests of CellSAf through the proper application of relevant laws. Furthermore, Blue Label will have to pay Cell C staff a significant sum for their 10% stake in the mobile phone operator.
Unless there is compensation for CellSAf and Cell C’s staff, Blue Label must not be allowed to take control of the country’s fourth-largest mobile phone operator.
Both CellSAf and Cell C’s staff must fight for what rightfully belongs to them. At the very least, their shareholding in Cell C must be transferred into TPC.
The stage is now set for the commission to possibly declare the recapitalisation of Cell C by Blue Label and Lesaka Technologies a merger, which would pave the way for a buyout offer to minority shareholders