Eight years after Telkom first offered to buy Business Connexion (BCX) in a R2.4 billion deal, which was quashed by the Competition Tribunal, the companies have again gathered around the negotiating table.
This time, Telkom is bidding a cash amount of R6.60 a share to buy out BCX, valuing the company at R2.67 billion - a 20% premium on its value when initial cautionary statements were issued on 14 April. BCX's share last closed at R5.96 and Telkom had R1.2 billion in the bank at the end of September.
In a joint announcement, the companies explain Telkom, which is in the midst of a restructuring programme, has been moving, since last April, to improve its performance. One of the pillars of this strategy is to grow beyond its core business of connectivity by expanding into ICT services.
In an internal mail to staff, Telkom CEO Sipho Maseko says the deal will give Telkom scale to expand into IT services and helps reinforce its core connectivity business. "Telkom believes that this combination will create a leading ICT company in SA, with unrivalled capabilities throughout the country."
BCX, which is listed on the JSE, is a "significant player" in the local ICT services market, and has strong capabilities in managed IT infrastructure, including data centres and application development.
Expansion pack
Telkom, which has been trading under cautionary for some time, intends to strengthen and find growth opportunities for its local operations, as well as support BCX's expansion on the African continent, it says.
Maseko notes the deal will create an ICT company that can address technology and communication needs of South African businesses nationally. "A key consideration of our strategy is to grow beyond our core business of connectivity and expand into end-to-end ICT services. This will form part of the strategy to improve performance and restore profitability."
BCX believes the tie-up would enhance its ability to accelerate its international growth, especially into Africa, which has been a focus point for the company. CEO Benjamin Mophatlane says there are "clear opportunities that exist between our respective companies".
"The dynamics of the global ICT industry are changing, particularly with the evolution and convergence of technologies that have blurred the lines that once separated telecoms players from the world of information technology."
Hopeful
BCX deputy CEO Vanessa Olver says the landscape has changed "totally" in the past eight years, with an influx of players that compete with Telkom. She notes the rise of offerings from companies such as Neotel, Vodacom, MTN and Cell C as examples.
Olver adds that BCX has also transformed as a business and has sold out of much of its communications offerings, leaving minimal overlap between the companies. The reality is that IT and telecoms companies are merging, she adds.
One such example is Japan-based NTT's successful R24.2 billion bid for home-grown Dimension Data a few years ago. Olver adds there have also been several international mergers between communications and IT companies.
Olver says the two firms are much more hopeful of the marriage being consummated this time around; noting much of the groundwork has already been done before the buyout needs to go before the regulatory authorities. Last time, the proposed tie-up was killed by the tribunal because it would have been anti-competitive and harmed other players in the sector.
"It is business as usual for us until all the conditions of the proposed transaction have been fulfilled," says Mophatlane. BCX shareholders are set to meet in the middle of July to vote on the offer and, should it go through, BCX will become a Telkom subsidiary and cease to be listed.
Share