The market is betting that either Telkom or Bytes Technology Group is the potential bidder referred to in a cautionary notice issued by Business Connexion yesterday, but analysts say there are other possibilities.
Analysts polled by ITWeb say it is likely BCX is involved in talks with more than one bidder.
Possible suitors listed by the analysts are Telkom, Bytes Technology Group, the pending second network operator, and foreign companies wanting to establish a footprint or expand in SA.
Business Connexion`s (BCX`s) share price surged on the JSE yesterday, closing 93c or 14.6% up at 728c. By late this morning the share was trading at 725c, giving the group a market capitalisation of R1.9 billion and a historical price-to-earnings ratio of 10.3.
Yesterday the group issued a statement saying it had received "expressions of interest for the company" and it had decided to enter into talks with "these potential bidders". No further detail was supplied.
Telkom`s share closed 90c or 0.7% lower at R136.90.
It was strongly speculated earlier this year that Telkom was looking to buy Business Connexion and BCX`s cautionary notice has revived those rumours.
However, another cautionary notice issued after the market closed yesterday, this time by Altron-owned Bytes Technology Group (BTG), has inevitably led to talk about BTG also being a possible suitor.
Dimension Data has been discounted as a bidder as CEO Brett Dawson said yesterday the group was not looking to make any large acquisitions.
Is it Telkom?
"I don`t know who it [the bidder] is," says Kaplan Equity Analysts MD Irnest Kaplan. "But it makes sense to me that it would be Telkom. There was some speculation some time ago that Telkom was wanting to buy Business Connexion, and it is definitely a fit. I know that Telkom wants to improve its IT services."
Kaplan adds that, worldwide, fixed-line telcos under threat try to bolster their revenue with other services, and outsourcing is BCX`s largest contributor.
"I don`t think BTG is a likely candidate," he says. "I think BCX is way too big for it to digest now. It has just bedded down the CS Holdings acquisition and it would have to go to the market to raise funds."
He says other possible bidders could be overseas companies such as data carriers like AT&T wanting to enter the local market with inroads into corporate customers, a company like Computer Sciences Corporation (CSC) wanting better entrenchment, as well as the coming second network operator, which would gain an advantage over Telkom through such a deal.
"But there are definitely multiple bidders. BCX`s key assets are very good people - and IT resources are scarce - and outsourcing contracts, some of which are long-term. It would be a great acquisition for anyone.
"But it would be a pity to lose BCX from the market," he adds. "It`s a good company with excellent people."
Commenting on BCX`s share price, Kaplan says: "It`s not overly valued. If anything, it`s undervalued at current levels."
Another analyst agrees that Telkom would make more sense as a potential buyer.
"It would be a big acquisition for BTG, although they do like to grow like that," he says. He adds that Altron has a lot of cash and has always tended to make cash offers, and BCX would be more likely to accept a cash offer than a share-based offer.
However, he believes BCX would make a better fit with Telkom, which has stated its intention to move into the full spectrum of ICT solutions.
Or is it BTG?
However, another analyst says BTG is the most likely candidate.
"Let me put it this way: if BTG is 80% to 90% likely, then Telkom is 70% likely," he says.
"But the BCX cautionary is stated in such a manner as to indicate that there are multiple talks going on. I wouldn`t rule out the possibility that BCX is talking to both Telkom and BTG."
He says if BTG does emerge as the leading candidate, it would most likely be through a merger than an acquisition. "I don`t see it making a cash offer of R2.2 billion, or whatever it may be."
The complicating factor, he adds, is that Altron`s Venter family likes to retain control, "so it would be interesting to see how that pans out".
He says an overseas company such as CSC or IBM Global Services can also not be discounted.
"But I think it is BTG. Its network and systems integration business is subscale and it is looking to build up critical mass in that area. There is also a lot of cross-selling opportunity."
The analyst adds that the IT services market is overtraded and consolidation would mean one less bidder when large contracts come onto the market.
He says that at current share price levels BCX is fairly valued if there were no takeover. "But in a takeover scenario it would be worth R8 if someone had to pay a premium. I certainly think a R7.50 offer would be too low."
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