AFRICA ONLINE AT THE CENTRE OF A CONTESTED TAKEOVER BID

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On 28 December African Telecoms Company Limited (ATC) formally announced to the London Stock Exchange its intention to “make a cash offer to acquire the whole of the issued and to be issued ordinary share capital of The African Lakes Corporation”. The offer is for £15.50 a share and values the ordinary share capital of the company at approximately GBP4.2 million. ATC has agreement from 27.2 per cent of the shareholders for its offer, that represents the share it owns. It is understood that another shareholder was going to indicate willingness to sell but was persuaded against it.

In the year ending September 2005, the company had a turnover of £9.5 million on which it made a loss of GBP79,000. Its consolidated assets were entered on the books at £1,412,000. Up until March 2003, African Lakes was a publicly listed company and therefore it has to abide by the London Stock Exchange code for ten years after that date. Hence the process of a formal offer announcement for what is now a delisted company.

ATC is owned by Schneider Media and Holding Group LLC (59.60%), Kenyan ISP Wananchi Online (30.26%) and African Technology Media and Telecommunications (10.13%) that is majority owned and managed by Richard Bell’s East African Capital Partners. Schneider Media and Holding Group is owned by the American Schneider family that developed and owned UGC, one of the world’s largest cable providers, before successfully selling out. The son, Mark Schneider has a Kenyan wife.

The bidders believe that “there is substantial pent-up demand for telephony and broadband services in Africa, which cannot currently be catered to because of the lack of copper wire infrastructure, but which could be successfully satisfied through a large scale investment in wireless WiMAX technology.” Richard Bell told us that he was “very excited about what we’re doing. We aim to build a pan-African infrastructure and have put together a complementary team of investors.”

The African Lakes Board resisted the offer in a formal announcement to shareholders the next day saying that it was “currently in discussions with a number of interested parties in respect of the potential offer….ATC was just one of the parties…It is possible these discussions may lead to the announcement of a higher offer or an offer for Africa Online which would result in a return to shareholders in excess of the offer announced by ATC.” It therefore recommended shareholders take no action on the offer. Lesley Davy, CEO and Board Member of African Lakes told us last Friday:”The primary responsibility of the Board is to increase the value of the company to shareholders.”

The serious competing bidder is South Africa’s incumbent Telkom that wants to purchase the Africa Online assets, not the whole of African Lakes. Telkom has been in the acquisitions market for quite some time. It has made a number of announcements about things that it wishes to purchase, most recently its desire to purchase Ugandan incumbent, utl. However it publicly failed with Nitel and its latest acquisition target – Business Connexion – is mired in competition challenges.

The mergers and acquisitions team at Telkom must be under some pressure as there have been more failed acquisition attempts that have not been made public. It is also interesting to think what it would be like for an incumbent to run eight small ISP operations where it controls none of the competitive ground. However, Telkom clearly has regional strategy where it will purchase former incumbents and use these to leverage its international and national buying power.

Buying an ISP to go alongside these purchases would help create a “triple-play” strategy. The only flaw in the strategy is that the company has not yet succeeded in buying anything yet despite having been at it for quite some time. That said, this might be the first one to go through.

  African Lakes is due to make a further announcement this week.