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Shares of Net 1 UEPS Technologies (NASDAQ: UEPS) jumped 22.1% Wednesday, after the alternative-payment systems company announced that it will acquire a strategic stake in Blue Label Telecoms.
More specifically, Net 1 has entered into a share subscription agreement with Blue Label for roughly 117.9 million shares, at a subscription price of 16.96 South African rands (ZAR) per share -- or a roughly 10% discount to Blue Label's 30-day volume weighted average price of ZAR18.84 on the Johannesburg Stock Exchange through Sept. 29. That equates to an aggregate consideration of ZAR2.0 billion, or roughly $144 million, after the completion of which Net1 will own roughly 15% of Blue Label's issued ordinary shares.
Net1 CEO Serge Belamant explained:
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"This investment cements the start of a multi-layered strategic alliance between our two groups that will greatly enhance shareholder value on both sides through cooperation between our combined local and international operations. Blue Label has announced that it intends to acquire 45% of Cell C, the third largest telecom operator in South Africa, and this new alliance will assist Net1, Blue Label, and Cell C to accelerate the growth of their combined customer bases, and facilitate cross-selling opportunities between themselves."
The deal is still subject to the approval of Blue Label shareholders, but Net1 expects to complete the transaction with a combination of cash on hand, debt, and issuing 5 million new shares of common stock at $9 per share.
That also means some dilution for existing Net1 shareholders. And there's a chance -- however slim -- that the deal might not go through. So even with shares of Net UEPS still down around 19% year to date as of this writing, I wouldn't blame investors for taking at least some of today's quick gains off the table. But in the end, given the compelling synergies this investment will apparently provide for all parties involved, it's no surprise to see Net 1 UEPS stock trading significantly higher today.
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