|
Related Topics |
|
Blue Label Telecoms (BLU) announced yesterday (5 October 2016) that they will be purchasing a 45% stake in unlisted telecoms operator Cell C for a consideration of R5.5billion. We take a look at some of the details below
|
Will Blue Lables balance sheet be feeling blue after buying Cell C stake?
According to the announcement by BLU they will raise roughly R2billion by selling their Net1 shares at a price of R16.96 per shares (offering the buyers a 10% discount on its 30 business day weighted average share price. Thats great, but still leaves Blu with R3.5billion it will need to pay.According to their announcement yesterday it will be funded via available cash and funding facilities
Well based on BLU's latest financial results they only have R590million in cash available. We can therefore safely assume that a massive amount of debt will have to be taken on to finance the stake in Cell C. Currently they are not heavily geared at all, but adding say R3billion in debt onto their books will push their debt:equity ratio up from around 0.5 to over 3.3 which will then make them highly leveraged. But there is an alternative.
A share issue. This is surely on the cards to. We expect that BLU will have a rights offer to raise a large part of the R3.5billion required after the Net1 sale to fund Cell C stake. In all likelyhood a very small portion of the R3.5billion will be funded from exisiting cash resources (the cash is needed to ensure the business has enough cash and doesnt experience cash flow problems) and that the share issue will contribute to most of the funding of Cell C while debt will be taken on to pay the rest. At current high interest rates businesses would ideally like to avoid taking on debt, as the return on the cash used by taking on the debt has to surpass that of the interest rate charged, otherwise the business is negatively gearing themselves.
Is this a good buy for BLU? We think so as they can use Cell C's network to offset more of their prepaid services, in addition to this BLU can use their current footprint to sell more of Cell C's products. Loads of synergies to unlock
In Summary:
Is this a good buy for BLU? We think so as they can use Cell C's network to offset more of their prepaid services, in addition to this BLU can use their current footprint to sell more of Cell C's products. Loads of synergies to unlock
In Summary:
- BLU will buy 45% of Cell C
- BLU will sell Net1 stake for R16.96 (to raise R2billion of the R5.5billion required)
- BLU will in all likelyhood have a rights issue to raise cash for the deal from shareholders
- BLU will take on small amount of debt to cover part of the R3.5billion it still needs of the Net1 sale