South Africa's Telkom takes second shot at IT firm BCX, offers $256 million

May 22
8:52 AM 2014

(Reuters) - South African telecommunications company Telkom (TKGJ.J) made a second stab at buying IT infrastructure firm Business Connexion (BCXJ.J) with a 2.7 billion rand ($256 million) offer, seven years after competition concerns scuppered its first bid.

Telkom, whose core business is providing fixed and mobile phone lines and data, has already begun the process of diversifying into information and communication technology services in common with many of its counterparts in other countries.

Business Connexion (BCX) runs data centres and acquiring it would bulk up Telkom's IT capacity.

"This will form part of the (diversification) strategy to improve performance and restore profitability," Telkom Chief Executive Sipho Maseko said in a statement.

Maseko is already driving cost cuts worth an annual 1 billion rand for the next five years in an attempt to turn the state-controlled operator around.

BCX shares jumped 8.2 percent to 6.45 rand by 1235 GMT, but stayed below Telkom's offer price of 6.60, suggesting investors are sceptical about the bid's chances of success.

Telkom, which traded down 1.6 percent at 37.90 rand in a stronger overall market, offered a 20 percent premium over the price that BCX was trading at before the IT company first alerted the market about a possible deal on April 15.

BCX would become a Telkom subsidiary and delist from Johannesburg's stock exchange if the deal went through.

"It would ...further entrench their (Telkom's) position in the convergence space," Greg Cort, an analyst at asset manager Electus, said of Telkom.

"Many of the things we were hoping to come through in BCX, like getting the data centres utilisation up, haven't materialised. There has been excess capacity in the South African market, so if this is absorbed down the line it would result in extra value to Telkom shareholders. As things stand, it is a reasonable price."

BCX trades at a price to earnings ratio of 8.53, compared with 19.19 for Johannesburg's All-share index .JALSH.

In March 2006, Telkom offered to purchase BCX for 2.43 billion rand but the Competition Commission and competitors opposed the bid on grounds it would hamper fair pricing in a country with high telecoms tariffs.

The new deal, which Telkom is funding from its cash holdings, was arranged by Investec Bank (INLJ.J) and Absa Bank, the South African unit of Barclays Africa Group (BGAJ.J).

(Editing by John Stonestreet)

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