Telkom has made a firm offer of R9 per share for leading IT services provider Business Connexion (BCX).
The telecommunications giant said on Tuesday it is seeking to acquire all of the BCX shares, other than those held as treasury shares and those held by the BCX share incentive trust.
It added that it has received a combination of written and in-principle support from five of the largest shareholders of BCX holding in excess of 50% of the company to proceed with the offer.
“Telkom has also signed a heads of agreement with Gadlex (Proprietary) Limited, the 25% black economic empowerment shareholders in BCX’s operating subsidiary, regulating its future participation in BCX,” it said.
Telkom said the transaction will advance its ongoing data strategy.
“In particular, Telkom believes that the transaction will enhance Telkom’s ability to offer its customers end-to-end solutions across the ICT [information and communications technology] value chain,” it added.
“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 transaction will enable Telkom to have a meaningful presence in the IT services market, extending its value chain with BCX’s proven capabilities in business application and support management, business process outsourcing and other IT-related complementary lines of business.
“BCX has defined a strategy to expand into the communication arena and has been considering a relationship with a communications company to that effect.”
If the offer is successful, BCX will continue to 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.”
The offer is at a premium to BCX’s current market price of about R8,70 per share.
At 1.45pm on Tuesday, the company’s shares were trading at R8.74 a share on the JSE — 2,46% or 21 cents better than Monday’s closing price of R8,53.
The deal is likely to meet with some opposition.
The Internet Service Providers’ Association of South Africa (Ispa) has already stated that it intends to lodge an objection with the Competition Commission if Telkom attempts to purchase a controlling stake in BCX.
Gregory Massel, joint chairperson of Ispa, said: “This transaction will aggravate an unfair situation because Telkom has a reputation for cross-subsidising valued-added services with income from its basic telephony monopoly.
“The end result of cross-subsidisation is consumers paying higher charges across a range of services and it remains an area worthy of investigation by the Competition Commission.”
Authorities have failed to force Telkom to adhere to transparent accounting practices to prevent cross-subsidisation. Ispa will highlight this issue in its Competition Commission submission.
“Telkom is doing everything in its power to entrench its unfair position in the run-up to the entry of the second national operator. The anti-competitive bundling of basic telephony services and value-added network services in ways not available to other players will be made that much easier if the monopoly buys BCX,” Massel said. — I-Net Bridge