Telkom and Business Connexion (BCX) today announced they have extended the deadline for conditions of the fixed-line utility's proposed takeover of BCX to be met.
Hearings into the R2.4 billion merger are taking place at the Competition Tribunal, which yesterday heard that BCX faces potential revenue loss as a result of the deal. Both companies have now agreed to extend the deadline from 15 March to 31 May.
The remaining condition, before the deal can be concluded, is that it is approved by the country's competition authorities. However, the pending deal has already had an impact on its financial results, with revenue remaining flat for the six months to end-November.
The Competition Commission, which last year recommended the merger not be allowed, has told the tribunal BCX's bottom line has been adversely affected by the pending deal.
The tribunal is set to hear evidence on the merger until 12 April before making a decision towards the end of that month.
Revenue loss
Advocate Owen Rogers, on behalf of the commission, says the company is split in its view on the deal. He read documentation written by head of strategy Willem Van Rensburg, which showed the potential merger led to resignations and the company has been unable to attract talent, as potential candidates did not wish to be associated with Telkom.
The company's business was also affected, as potential clients chose to wait for the tribunal's decision on the merger before signing contracts, giving competitors such as IBM and T-Systems additional opportunities to sew up deals, Van Rensburg wrote.
Van Rensburg argues the company was poised to become a major player in the outsource space, due to its planned investment in a multimillion-rand next-generation network (NGN), and its strategic deal with Vencon, a global virtual network operator.
The NGN investment would have increased BCX's revenue six- or sevenfold, Van Rensburg's documentation said. However, the merger soon put paid to that potential. Rogers also presented evidence that the board views the potential merger as harmful to the firm.
Share knock
BCX CEO Peter Watt previously stated he would step down once there is clarity on whether the deal could proceed.
Analysts say if the merger is blocked, another bid for the company is highly likely. One analyst says the company's share price is already discounted, with the market pricing the company as if the deal will not be allowed to go through. He says another bid is likely to follow any announcement that the merger will not go ahead. "There will definitely be another bid, at possibly these levels." Telkom bid R9 a share, with a 25c dividend.
He says a bid of R7 a share is about a 15% premium and - in his opinion - would be a fair offer. This morning, BCX opened at R6.79 and, in under an hour, lost 4.82%, to trade at R6.71.
Another analyst views the potential death of the deal as good for the industry and the company, although negative for shareholders.
He points out staff morale would be improved and possible "ship-jumpers" would be reassured. Telkom, he says, has the potential to "start" its own BCX, although its IT division only employs 1 000 people.
A third analyst argues that another bid would not likely be at R9.25 a share. He adds the past 18 months had been difficult for the company, as Telkom's bid was not popular in the market. "Telkom-bashing is like a national sport."
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