Neotel tipped as BCX Comms buyer

By Candice Jones for Neotel
Johannesburg, 18 Jun 2008

Market rumour is strongly pinning second national operator Neotel as the preferred bidder for Business Connexion's (BCX) ailing communications subsidiary.

BCX has been trading under cautionary since March, following severely disappointing results from the division.

Neotel could not confirm whether it would consider buying the business, and BCX Communications could not be reached for comment. However, analysts say Neotel is an ideal candidate for the purchase of the division.

BCX Communication's results for the six months ended 30 November 2007 showed it made a R6.8 million loss. In the previous interim period, BCX Communications made a R7 million loss, closing the full year at a R24.3 million operating loss.

BCX shares soared when it issued a cautionary announcement relating specifically to negotiations around the subsidiary, which BCX acquired from Bidvest a few years back. At the time the acquisition was made to enable converged IT and telecoms networks to clients.

Skills and customers

"It would make sense for Neotel to buy BCX Communications," says IDC program manager for communications and networking Richard Hurst. He says the business would add strength to Neotel's stable.

Hurst says the biggest gain Neotel can get from an acquisition like this would be the skills base it would acquire. "With SA's lack of skills, it would make excellent business sense to grab talent where you can find it. And Neotel needs the skills."

Irnest Kaplan, MD of Kaplan Equity Analysts, says Neotel would not only gain the skills it is looking for, it would also acquire the customers linked with the old Bidvest stable. "It would be great for Neotel to pick up those clients and transfer them to its own infrastructure."

He says BCX is not in a position to develop its communications division any further, because it is still reeling from the R2.4 billion proposed merger with Telkom, which was crushed by a Competition Tribunal ruling.

Neotel has made other acquisitions to boost its infrastructure and customer base - most notably its R230 million purchase of Transtel. At the time, the company said the acquisition gave it faster entry into the enterprise markets, and provided it with a platform to introduce its next-generation services for businesses.

It also brought the company a significant customer base reportedly generating R600 million a year.

Other players

However, Neotel is not the only speculated bidder for BCX Communications. According to Kaplan, GijimaAST could be a contender with Dimension Data hot on its heels. Bytes Technology Group has also reported interest in the businesses.

"Gijima is still trading under a cautionary, looking for a converged networks and communications business," he adds.

Pieter Kok, senior research analyst at IDC SA, says: "BCX Communications plays nicely into Gijima's managed network infrastructure plans. Converged services and integration will be essential for most businesses in this market, especially with the telecoms space changing so rapidly."