Telkom Agrees to Buy Business Connexion to Boost Offering

Mergers, Acquisitions and Financial Results

Telkom SA  agreed to acquire Business Connexion Group Ltd. (BCX) as Africa’s largest fixed-line phone company plans to boost its cloud-based offerings of information and communication technology services.

Telkom is offering 6.6 rand a share for Business Connexion, an 18 percent premium over the 30-day volume-weighted average price, the companies said in a joint statement today. The offer values Johannesburg-based Business Connexion at about 2.7 billion rand ($257 million), based on 405 million shares outstanding, according to data compiled by Bloomberg.

Telkom, 40 percent owned by the South African government, is struggling to revive revenue growth as consumers migrate from fixed-line technology to data-enabled smartphones and tablets. The Pretoria-based company needs to cut its workforce of about 19,200 employees by almost a third over five years to remain financially viable, Chief Executive Officer Sipho Maseko said in December. Telkom said May 13 it intends to reduce its “management layer” by about 25 percent.

“The proposed transaction will address the technology and telecommunications needs of South African companies, both within their domestic markets and as they expand into other African countries and beyond the continent,” the companies said in the statement.

Business Connexion shares jumped 9.1 percent in Johannesburg, the steepest intraday gain since November 2011, and traded 7.4 percent up to 6.40 rand by 2 p.m. About 6 million shares were exchanged, more than 10 times the three-month daily average.

Telkom fell 1.3 percent to 37.67 rand. The company is the fifth-best performing stock of the 166-member FTSE/JSE Africa All-Shares Index this year with a gain of 35 percent, valuing the company at 19.7 billion rand. Telkom will fund the acquisition from its own cash resources, according to the statement.

The company owned 3.7 million lines at the end of September, according to the statement. For the fiscal year ended March 2013, fixed lines, including data, accounted for 91 percent of Telkom’s revenue, compared with 4.2 percent for mobile.

Absa Bank Ltd. advised Telkom on the deal, while Investec Bank Ltd. advised Business Connexion. Edward Nathan Sonnenbergs Inc. provided legal guidance to both companies, according to the statement.