Telecoms network operator Telkom has confirmed it has submitted a bid to buy the entire share capital of Business Connexion (BCX).
The BCX share rose immediately on the news, and was trading at 750c on the JSE by 2.15pm. This is 22c or 3% up on yesterday`s close. Yesterday it rose 93c or 14.6% to 728c.
Telkom`s share also rose after the confirmation, climbing R2.09 or 1.53% to trade at R138.99.
Telkom`s statement comes after BCX announced yesterday it had received "expressions of interest for the company" and it had decided to enter into talks with "these potential bidders".
BCX CFO Alan Farthing has confirmed there is more than one bidder. Farthing notes that while BCX did not initiate the bidding process, the board has a responsibility to shareholders to put offers of value before them.
"We didn`t solicit this," he says. "We`re a good company and expect to go on to do great things. Apparently, other people think so too."
Farthing could not say when an announcement would be made regarding the offers.
Until Telkom`s statement early this afternoon, analysts had been divided over whether BCX was in talks with Telkom or Bytes Technology Group (BTG), which published a cautionary notice after the market closed yesterday, saying it was in undisclosed talks.
Telkom is not obliged to issue a cautionary notice as acquiring BCX is not a large enough deal relative to Telkom`s market capitalisation to make such a notice compulsory.
Telkom says its admission is to correct a statement made by "a Telkom spokeswoman" in response to BCX`s cautionary notice.
Reuters earlier cited Telkom`s Lulu Letlape as saying Telkom was not bidding for BCX.
Analyst Irnest Kaplan, MD of Kaplan Equity Analysts, said this morning that Telkom wanted to improve its IT services, adding that, worldwide, fixed-line telcos under threat try to bolster their revenue with other services, and outsourcing is BCX`s largest contributor.
Telkom is facing the introduction of a second national operator (SNO), ending its long monopoly in the local market.
The operator said at the release of its interim results this week that it wanted to pursue opportunities to provide the full spectrum of ICT solutions.
Kaplan notes that just because Telkom has confirmed it has submitted a bid, "It`s not guaranteed that Telkom will get it. The BCX cautionary announcement indicated there was more than one bidder, and you may even see a bidding war."
He says it is unlikely the process is being driven from the BCX side. "It`s more a case of Telkom driving it rather than BCX management looking to sell.
"BCX is a well respected company and it has spent a lot of time and money on its branding. I can`t see that it would be desperate to get into bed with any big partner.
"Having said that, BCX would benefit from the economies of scale Telkom has. BCX has been building a giant data warehouse and Telkom has immense resources in that field. BCX does better when it has more scale for its outsourcing contracts, and they could even end up combining some of the contracts which would help retain customers better."
He adds that the deal would be good for Telkom in terms of the SNO. "It makes it that much harder for the SNO to break in."
Kaplan speculates that Telkom would incorporate BCX into its data business. "BCX`s revenue is R2.8 billion, and Telkom`s data revenue is about that, so it will definitely add to Telkom."
However, overall, BCX`s revenue is less than 10% of that of Telkom. "I`d be sad to see BCX go. It would be gobbled up by Telkom and disappear in the numbers."
However, a source close to the deal who may not be named says that Telkom would more than likely keep BCX operating as a separate entity. "BCX as a company is a very well-run business. The idea would be to use BCX to supplement and complement the skills set that Telkom lacks," the source said.
Official Telkom spokesmen were not immediately available for comment and BCX CEO Peter Watt is out of the country.
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