a bid to get new investors, Nigeria Code Division Multiple Access (CDMA) operator, Starcomms Nigeria Plc, is awaiting the approval of its shareholders to accept a $210 million proposed transaction after it has posted documents relating to Capcom Limited’s proposed investment to its shareholders. Starcomms is seeking its shareholders’ support to consolidate its merger with Multilinks and MTS into a single entity – Capcom.
The deal will lead to Starcomms, the only telecoms company listed on the Nigerian Stock Exchange (NSE) to relinquishing 90.5 percent of its shares to the new investor, Capcom. The new investor on the other hand will inject a combination of assets and cash into Starcomms worth $210 million. Starcomms claimed to presently have about 6.9 billion shares.
To earn their approval, Starcomms will hold a court-ordered Annual General Meeting (AGM) on December 28 in Abuja, to enable shareholders vote on the scheme and to pass special resolutions giving effect to the private placement and approving the transaction – after which final regulatory approvals will be obtained before Capcom assume control of Starcomms. At the AGM, issues relating to share reconstruction and rights issues among others are expected to be ironed out between the management board and shareholders.
The company said that the transaction would be effected through a scheme of arrangement and a private placement, both of which had been approved by the board of directors of Starcomms. The scheme have also been sanctioned by the Federal High Court.
Speaking about the transaction, Interim CEO of Starcomms Plc, Olusola Oladokun, said: “Starcomms has experienced significant challenges over the past two years, at the heart of which have been the changing competitive and operational dynamics of the Nigerian telecommunications industry, especially in the voice business.
Some of the challenges envisaged according to Oladokun include: tough business environment; GSM dominated market; low financial muscle, hinted that the challenges have resulted in Starcomms operating with an unsustainably high level of debt and a stagnating operating performance. As a result of this , Starcomms faces a severe liquidity crisis, which prompted the Board of Directors to consider options available to introduce new capital into the company, stressing that without this new capital the company will fail as a going concern and shareholder value will be lost, he said.
Oladokun stated that “The board of directors has been considering a number of options to reposition the company for growth. After a careful consideration, we believe that the investment by Capcom, which will provide the capital required for continued operations as well as enabling investment in new technology, combined with the injection of new spectrum and the CDMA assets of Multi-links, creates the best possible platform for Starcomm’s future. We strongly recommend – and look forward to – the transaction being approved by our Shareholders.”
According to him, the company has reduced outstanding financial debt from 31.9 billion naira ($203 million) in Q1 2010 to 15.1 billion naira ($96 million) as at Q3 2012. He explained that trade creditor balances have also increased significantly to 9.6 billion naira ($61 million) in Q3 2012 as Starcomms has struggled to meet its ongoing obligations due to lack of available cash.
The proposed transaction, he however said is essential to reduce creditor balances and re-establish strong supplier relationships going forward.
“The transaction will be effected through a Scheme of Arrangement (“the Scheme”) to be followed by a Private Placement and a Rights Issue. The Scheme will involve the cancellation of 3.4 billion naira ($22 million) in the company’s share capital, comprising 6,897,293,744 ordinary shares of 50 kobo each, and the subsequent issuing of 662,550,000 new, fully paid up ordinary shares to Capcom, constituting 90.5 percent of the post scheme-reorganised, issued share capital.”
“The Scheme is subject to Starcomms’ Shareholders vote and approval at court ordered and annual general meetings to pass the special resolutions to give effect to the Scheme’s terms and to Capcom’s investment.
“The transaction is subject to obtaining various regulatory approvals including those of the Federal High Court, the Securities and Exchange Commission and the Nigerian Communications Commission which has already confirmed it’s “approval-in-principle”.
According to top executives of Starcomms and Capcom, the deal would lead to the emergence of Capcom as the first operator to deploy Long Term Evolution (LTE), a fourth generation (4G) technology pathway with capacity for high speed data, voice and internet services for consumers in Nigeria. Capcom is expected to start operations early next year and launch LET within 6-12 months.
Capcom’s CEO designate for Starcomms post transaction completion, Demola Elesho added that the aggregation of spectrum allocations from Multi-Links and MTS, which is a contiguous 20MHz of spectrum in the 1900MHz range, is the largest allocation of any telecoms provider in Nigeria.