BCX acquisition 'likely to proceed`

By Iain Scott, ITWeb group consulting editor

Johannesburg, 05 Apr 2006

It is unlikely that competition authorities would rule against Telkom`s proposed acquisition of Business Connexion (BCX), says an analyst.

In addition, he comments, the effective R9.25 per share being offered is far above fair value for BCX.

"If I were a BCX shareholder I`d be very happy to accept that," he says.

The BCX share was trading unchanged at 870c this morning after 294 127 shares changed hands in 14 deals. Yesterday it gained 17c.

Telkom confirmed its intention yesterday to make an offer to acquire BCX at R9 a share by way of a scheme of arrangement and reiterated that it would also agree to BCX paying a dividend of 25c a share after the scheme meeting but before the implementation of the scheme.

A scheme of arrangement is essentially a way of structuring a bid. Normally, if a bid is accepted by shareholders owning more than 90% of a company, the bidder can force remaining shareholders to accept the offer on the same terms.

A scheme of arrangement proceeds with the approval of 75% of shareholders.

Telkom has repeated an earlier statement that it had approached five of BCX`s largest shareholders, owning more than 50% of the group, and that these had expressed their support for the offer.

Telkom has also signed heads of agreement with Gadlex, the black empowerment entity that holds 25% of BCX`s operating subsidiary.

Gadlex includes BCX deputy CEO Benjamin Mophatlane and his brother Isaac. The brothers created the original Business Connexion which in 2003 was merged into what was then Comparex.

Mophatlane was involved in budget meetings this morning and could not be reached for further comment.

Gadlex does not own shares in the listed holding company.

'Not anti-competitive`

Commenting on the competition implications of the proposed acquisition, the analyst says the market is not sufficiently fragmented, "especially now with the Electronic Communications Act and the liberalisation of telecoms".

"In terms of the letter of the law with regard to the Competition Act, this is not anti-competitive.

"But anything in connection with Telkom gets emotive," he adds. "It could take longer than usual to complete because of objections that may be lodged. That`s probably why Telkom has given itself until 15 December to complete it."

The analyst says Telkom is not going to offer IT services it has not offered in the past. "It will just give it a bigger market share, but not big enough to fall foul of the competition authorities.

"The probability of the deal going through is greater than it not going through," he comments.

Telkom says the acquisition will advance its data strategy.

"In particular, Telkom believes the transaction will enhance Telkom`s ability to offer its customers end-to-end solutions across the ICT value chain," it says.

"Telkom`s strength has to date been on ICT services relevant to its core connectivity proposition, managed network and Internet access and BCX offers a complementary service offering."

The companies say in a joint announcement that BCX, should the offer be accepted, will operate as a standalone or separate business unit within Telkom.

"BCX will retain and expand its service offering and always service its clients with ongoing commitment."

Another analyst says while shareholders should be happy with the R9.25 they will receive, the fact that BCX will operate as a standalone unit is likely to sweeten the deal for BCX executives, whose future at the group is now assured.