Blu Label Unlimited’s long journey to simplify its structure and unlock shareholder value has entered a decisive phase.
With a binding implementation agreement now in place and regulatory approval secured for critical transactions, the much-anticipated listing of Cell C appears imminent. The restructuring is large, complex and transformative. But the central question for investors is straightforward: what is Cell C really worth?
The planned listing, which will see Cell C spun out into a new holding entity dubbed Cell C ListCo and listed on the JSE, is part of a broader strategic cleanup. Through a sweeping series of asset transfers, debt-for-equity swaps and ownership consolidations, Blu Label is preparing to present the market with a Cell C that is leaner, more transparent and more autonomous than it has ever been.
Blu Label’s wholly owned subsidiary, The Prepaid Company (TPC), has already increased its voting control in Cell C to 53.57%, securing the position of controlling shareholder. However, once the prelisting restructuring transactions are complete — including the conversion of R3.67bn in debt, the transfer of airtime inventory and the internalisation of Comm Equipment Company — TPC’s economic interest in Cell C is expected to rise to about 90%.
Blu Label is poised to sell down that stake to as low as 26%, depending on the pricing outcome of the IPO. Critics see the sell-down as a potential vote of no confidence. Why would Blu Label walk away from majority control in what it describes as a turnaround success?
The company’s leadership has a ready answer: this is exactly what the market has been asking for — a clean break between Blu Label’s core prepaid distribution business and the controversial Cell C stake. Investors have long complained about the tangled web of intercompany transactions, unclear reporting lines and financial opacity, and the IPO is designed to address that.
But confidence will ultimately depend on the numbers. While the headline figures on Cell C’s turnaround are encouraging — positive earnings before interest, tax, depreciation and amortisation, growing mobile virtual network operator (MVNO) revenues and improved network availability — IPO documents are where the rubber meets the road. South African listing regulations require a prelisting statement (PLS) to include a comprehensive set of disclosures that will finally put Cell C under the magnifying glass.
The central question for investors is straightforward: what is Cell C really worth?
Investors can expect the PLS to contain the latest audited financials, typically covering the past three financial years. This will include income statements, balance sheets and cash flow statements prepared under international financial reporting standards, allowing a detailed view of profitability, leverage and capital expenditure trends. The document must also disclose any material risks such as litigation, customer concentration or reliance on roaming agreements with Vodacom and MTN.
Forecasts or forward-looking statements, if included, will need to be substantiated and vetted by auditors. Executive remuneration, incentive structures and any related-party transactions must also be disclosed. The PLS will detail the shareholding structure pre- and post-IPO, any lock-up agreements and the full mechanics of the planned sell-down. In short, investors will finally get a complete picture of what Cell C is, what it earns, how it operates and where it’s headed.
Given the scope and impact of the listing, a roadshow is widely expected. The Cell C management team, who stand to receive a 4.5% stake as direct incentive, will make their case to institutions, analysts and the investing public. The emphasis is likely to be on the new capital-light model, where Cell C leverages infrastructure owned by other operators while retaining valuable spectrum assets. They will also highlight growth areas such as the MVNO business and partnerships such as Capitec Connect, which already has 1.6-million active users.
Still, while Cell C’s recent restructuring reduced many of the historic risks — ballooning capex, unsustainable debt and operational inefficiencies — others remain. Some investors may question whether Cell C’s shift to an asset-light model makes it too dependent on the goodwill and pricing of network partners. Others may probe deeper into the company’s customer retention metrics, churn and the durability of its MVNO-driven growth.
And of course, much will depend on the valuation. If Cell C ListCo debuts at a multiple that reflects its improved performance, Blu Label’s remaining 26% (or more) will continue to unlock value for shareholders. But if the IPO documents reveal weak underlying fundamentals, or the offer price is set aggressively, the market may not be so forgiving.
The share price performance of Blu Label tells the story so far: up more than 170% in the past 12 months, driven largely by anticipation of the Cell C separation and investor optimism about a cleaner, more focused Blu Label emerging on the other side. Whether that rally can continue will now hinge almost entirely on the market’s appetite for Cell C as a standalone entity.
For now, the signals are promising. But as with any listing, especially one coming out of a long and troubled turnaround, the devil will be in the details.
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