BEE partner accuses Blue Label and Net1 of trying to ‘hijack’ Cell C: report

Cell C’s black empowerment partner, CellSaf is accusing the mobile operator’s new bedfellows, Net 1 and Blue Label Telecoms of trying to underhandedly hijack the company through a series of undisclosed dealings.

Ahead of the release of Blue Label’s financial report this week, CellSaf made it clear that the telco group’s plans to recapitalise Cell C were far from being a ‘done deal’, vowing to challenge the process every step of the way.

As part of Blue Label’s recapitalisation plan, it will acquire a 45% stake in Cell C through its subsidiary The Prepaid Company. ICT group Net1 – which was thrown into the spotlight this year in the Sassa payments scandal – will own a further 15%, Cell employees will own 10%, and around 30% of the company will be split into three special vehicle companies.

These companies are Cedar Cellular Investment (which carries 11.8% of Cell C), Magnolia Cellular Investment (16%) and Yellowwood Cellular Investment (2.2%).

It’s these special vehicle companies which are now coming under scrutiny, with CellSaf complaining to the Competition Commission that some underhanded tactics are being employed.

How to capture Cell C

According to a report by the Mail & Guardian, which has seen the CellSaf complaint, the empowerment group is accusing Net1 and Blue Label of trying to hijack and secure dominant (75%+) control of Cell C.

For Blue Label, CellSaf said that the group was already effectively financing the mobile operator – highlighting a deal between the companies where Blue Label buys R436 million worth of airtime a month, which the empowerment group believes was designed to keep Cell C afloat.

Further, there was a strange “return of airtime agreement” in place, where Cell C bought back R2.5 billion worth of its own airtime, which Blue Label then used to fund a significant portion of its stake in Cell C.

For Net1, CellSaf said it uncovered plans in confidential documents that there were options for an obscure company in which Net1 has a significant stake – DNI-4PL Contracts – to acquire two of the three special vehicle companies.

DNI is the leading distributor of mobile subscriber starter packs for Cell C and also distributes pre-paid airtime through an extensive network of field operatives and agents.

In March 2017, Net1 said it concluded a memorandum of understanding to acquire 49.6% of DNI-4PL Contracts with an option to acquire a controlling stake (55%) in DNI in the future.

If Net1 has a 55% stake in DNI, and DNI could end up holding up to 28% of Cell C, in effect, Net1 could land another 15.3% stake in the group, on top of the 15% it has directly, CellSaf said.

This, in turn, would give Net1 and Blue Label a combined 75.3% of the company – more than the 75% required by law to pass special board resolutions.

The empowerment company alleges that the complicated web of deals and contracts would give the companies full control of Cell C, and enable them to market to social grant recipients (Net1) and through exclusive distribution channels (Blue Label).

More importantly, the group believes that these dealings will not pass regulatory and legal hurdles when investigated fully.

Company responses

Responding to the accusations, Net1 told the Mail&Guardian that it was not aware of any arrangements as claimed by CellSaf – while Blue Label maintained it has made all the necessary legal declarations to shareholders and competition authorities.

Cell C, meanwhile, expressed disappointment at CellSaf’s constant attempts to derail what it called a ‘vitally important deal’ that will save the company. Cell C said it would co-operate with any Competition Commission inquiry should it wish to look into the matter.

CellSaf has vowed to continue fighting the process.

You can read the full report on the Mail&Guardian.

Read: Blue Label completes Cell C recapitalisation

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BEE partner accuses Blue Label and Net1 of trying to ‘hijack’ Cell C: report