Telkom makes cash offer for Business Connexion Group's entire share capital

By Phumeza Tontsi for Telkom Business
Johannesburg, 22 May 2014

Telkom SA SOC (Telkom), South Africa's listed full service ICT provider, today announced it has made an offer by entering into an agreement with Business Connexion Group (BCX) in terms of which Telkom will acquire 100% of BCX.

BCX is a listed company and a leading player in the South African ICT services market, with strong capabilities in managed IT infrastructure, including data centres and application development.

In terms of the offer, Telkom will acquire, for cash, 100% of the BCX share capital by means of a Scheme of Arrangement at a price per share of R6.60, representing a total cash consideration to BCX shareholders of approximately R2.7 billion.

The offer is fully financed and represents a premium of 22% to the volume weighted average share price of R5.38 for the 60 trading days prior to BCX's cautionary announcement on 15 April 2014.

Telkom intends to strengthen and seek growth opportunities for its South African operations and to support expansion of BCX's current footprint on the African continent.

Commenting on the offer, Telkom Group CEO Sipho Maseko said Telkom believes this acquisition will create an ICT company which will address the 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," said Maseko.

According to BCX CEO, Benjamin Mophatlane, this would be a significant step forward for Business Connexion as part of the company's own convergence strategy. "It will increase our ability to meet our customers' needs through integrated end-to-end solutions."

The proposed acquisition is in line with the global trend of IT and telecoms convergence driving the development of rapidly changing products and services and re-shaping the overall IT and telecoms business landscape. This convergence trend has seen many traditional IT companies merge with telecommunications companies and is fundamental to the strategies of trailblazing companies such as Google, Apple and Amazon.

Telkom believes its offer represents substantial value to BCX shareholders. Telkom's offer is fully-funded and a full detailed due diligence was undertaken and completed.

It is the company's view that the offer is in the best interests of BCX, its stakeholders and the long-term telecommunications interests of South Africa and the African continent. The proposed transaction will enable BCX shareholders to dispose of their shares at a premium to the recent historical traded market price of the shares.

In the event that the schemes are successfully implemented, BCX will become a wholly-owned subsidiary of Telkom and its listing on the JSE will be terminated.

Telkom

Telkom SA SOC ("Telkom") is a full-service telecommunications provider for South Africa. The company offers wholesale, business, residential and payphone customers a wide range of voice and data services and products, in support of the company's mission statement - seamlessly connecting people to a better life. As of 30 September 2013, Telkom had approximately 3.7 million telephone access lines in service and 183 880 ports connected via MSAN access.

The company had consolidated operating revenue of R16.2 billion and profit after tax of R773 million for the six months ended 30 September 2013, excluding the net curtailment gain. Total assets amounted to R39.6 billion and equity attributable to the owners of Telkom to R21.5 billion as of 30 September 2013. The group generated free cash flow of R33 million for the period ended 30 September 2013.

The company offers business, residential and payphone customers a wide range of services and products, including:

* Fixed-line retail voice services using PSTN (Public Switched Telephone Network) lines, including ISDN (Integrated Services Digital Network) lines, and the sale of subscription-based value-added voice services and calling plans;

* Fixed-line customer premises equipment rental and sales services, both voice and data needs, and these include PABX, computers, routers, modems, telephone handsets and other ancillary equipment;

* Interconnection services, including terminating and transiting traffic from South African mobile operators, as well as from international operators and transiting traffic from mobile to international destinations;

* Fixed-line data services, including domestic and international data transmission services, such as point-to-point leased lines, ADSL (Asymmetrical Digital Subscriber Line) services, packet-based services, managed data networking services and internet access and related information technology services;

* Data centre operations includes e-commerce, application service provider, hosting, data storage, e-mail and security services;

* W-CDMA (Wideband Code Division Multiple Access), a 3G next generation network, including fixed voice services, data services and nomadic voice services;

* Mobile communication services, including voice services, data services and handset sales through its mobile brand called Telkom Mobile;

* Telkom Mobile is continuously expanding its long-term evolution (LTE) coverage. It is the company's latest generation of mobile network technology that provides super-fast mobile wireless broadband with low latency (or buffering) that gives users an unsurpassed experience for their everyday data connectivity needs. It is a step up from 3G offering up to 90Mbps download speed and up to 25Mbps upload speeds - approximately three to four times faster than current 3G speeds. It is an ideal option for use in areas where there is no ADSL infrastructure; and

* Convergence is one of Telkom's key strategic initiatives in building a sustainable future for the company. It will lead the provision of converged services in South Africa in support of its mission statement: Seamlessly connecting people to a better life.

The Telkom Group consists of Telkom as well as two main subsidiaries, namely Trudon and Swiftnet. Trudon provides several directory service offerings off both physical and electronic platforms and Swiftnet provides a suite of services including traditional connectivity services for point-of sale, managed SIM services and customised wireless and wired virtual private network services.

Telkom is listed on the Johannesburg Stock Exchange (JSE) and has a market capitalisation of approximately R17.5 billion (as at 31 March 2014).

BCX

BCX is one of the largest ICT services providers listed on the JSE when measured in terms of turnover, assets under management and staff complement. It remains one of the leading South African cloud-based services providers with offices in South Africa, Namibia, Nigeria, Mozambique, Tanzania, Zambia, Kenya, Botswana, the United Kingdom and Dubai. The company employs more than 6 800 people on the African continent and generates revenue in excess of R6 billion per annum.

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