Mergers, Acquisitions and Financial Results

  IT group Business Connexion is fed up with the time it’s taking for the competition authorities to make a final decision on Telkom’s offer to buy it out. “This process has been very disruptive to our business,” says BCX deputy CEO Benjamin Mophatlane

He feels that it has taken the Competition Commission “unreasonably long” to recommend that Telkom’s offer of R2,4bn for BCX be blocked. The commission recommended the acquisition be “prohibited” last Friday, more than five months after it began its investigations.

Now, more delays are in store. The Competition Tribunal, the final arbiter in competition matters, must hold hearings, which could drag the process well into next year. BCX’s share price, which has already taken a knock following last week’s recommendation by the commission, is likely to continue to languish well below Telkom’s offer price. On Tuesday, it was trading at a 25% discount to Telkom’s effective offer of 925c/share, suggesting the market is not confident of the deal getting the approval of the tribunal.

In its “recommendations” document, the Competition Commission warns that if the deal proceeds it will result in “a substantial prevention or lessening of competition”.

Telkom, it says, has the “ability and incentive to engage in strategies to remove competitors and competition”.

It also says that the deal, if it goes ahead, is likely to “substantially prevent or lessen competition in the markets for electronic communications services and IT services, specifically, and the broad IT sector generally”.

Telkom says it will pursue the deal all the way, saying it has a “strong case”. Whether BCX will stay the course is less clear. The BCX board will meet soon to discuss whether to agree to an extension with Telkom, whose offer expires on December 15, or whether the company will walk away.

Mophatlane says BCX’s annual general meeting, to be held on November 30, will provide the board with deeper insight into whether the company’s shareholders have the stomach for more delays, given the damage further uncertainty could do to BCX’s business. The company’s biggest shareholders are Stanlib (22%), Sanlam (12,7%) and Allan Gray (8,9%).

If the deal doesn’t proceed, BCX management wants to restructure the business to ensure that it doesn’t become a takeover target again. “We don’t want to find ourselves in play again,” says Mophatlane.

Another offer could come quickly, though. Bytes Technology Group, a subsidiary of Altron, has previously put in an offer to buy BCX.

“It’s still an interesting company to us,” Bytes CEO David Redshaw told the FM this week. He says he is keeping a close eye on developments.