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(Adds Blue Label CEO comment, share movement)
By Nqobile Dludla
JOHANNESBURG, Oct 5 (Reuters) - Blue Label Telecoms the largest distributor of pre-paid airtime and data in South Africa, will pay 5.5 billion rand ($400 million) for a 45 percent stake in debt-laden mobile firm Cell C Ltd, it said on Wednesday.
The deal will give Blue Label a share of profits on a product it distributes as well as a major stake in a company facing a consumer backlash due to slow network speeds.
For Cell C, the deal is part of its efforts to pay down debt which forced it into a restructuring deal with bondholders in 2014, involving pushing back the maturity of some of its short-dated borrowing to July 2018.
Cell C, founded in 2001 by Saudi Arabia's Oger Telecom, has struggled to compete against established South African rivals Vodacom and MTN Group.
To fund the Cell C deal, Blue Label will pay 3.5 billion rand from available cash and funding facilities, while 2 billion will come from an agreement with South Africa's Net 1 UEPS Technologies, Blue Label said in a statement.
Payments processing and technology firm Net 1 is buying 117.9 million Blue Label shares for 2 billion rand, giving it a 15 percent stake in the airtime distributor.
Shares in Blue Label rose 8.9 percent to close at 20.20 rand and Net 1 shares surged 10 percent to 139 rand, the two best performers on the JSE Allshare index.
Net 1 Chief Executive and Chairman Serge Belamant said the investment was the start of a strategic alliance that would enhance value for shareholders in both firms thanks to cooperation between their local and international operations.
He also said Blue Label's 45 percent stake in Cell C would help all three companies involved attract more customers faster and offer cross-selling opportunities.
Blue Label Joint Chief Executive Brett Levy said the stake in Cell C will not compromise his firm's distribution deals with other telecoms companies.
"It's business as usual with the likes of Vodacom and MTN," he told an investor call.
Net 1 expects to pay for the transaction through a combination of cash and debt plus the issuance of five million shares, the company said on Wednesday.
Cell C will issue new shares to staff, senior management and existing shareholders following the deal to help reduce its borrowing to a maximum of 8 billion rand, Blue Label said.
$1 = 13.7580 rand Additional reporting by Tiisetso Motsoeneng and TJ Strydom; editing by David Clarke and Adrian Croft