Telkom pays R2.7bn for ICT diversity

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Reuters

File picture: Siphiwe Sibeko

Johannesburg - Just days after Vodacom announced that it was purchasing Neotel for R7 billion, Telkom revealed yesterday that it would purchase Business Connexion for R2.7bn in a move that will diversify the fixed-line giant’s offering in the local telecommunications market.

Chief executive Sipho Maseko said Telkom would acquire 100 percent of the listed information and communications technology (ICT) solutions provider through a scheme of arrangement at R6.60 a share.

Maseko said the deal, which was pending approval from competition authorities, was fully financed and represented a premium of 22 percent to the volume-weighted average share price of R5.38 for the 60 trading days prior to Business Connexion’s cautionary announcement on April 15.

He was of the view that the acquisition would address the ICT needs of South African businesses nationally. “A key consideration of our strategy is to grow beyond our core business of connectivity and expand into end-to-end ICT services. This will form part of the strategy to improve performance and restore profitability.”

Business Connexion chief executive Benjamin Mophatlane said the proposed deal was a “significant step forward” as part of the firm’s own convergence strategy. “It will increase our ability to meet our customers’ needs through integrated end-to-end solutions.”

According to ICT research analyst Lehlohonolo Mokenela at Frost & Sullivan Africa, there was little scope for Telkom to grow in mobile communications. In addition, the fixed-line voice market was on the decrease.

Mokenela said the proposed takeover would give Telkom scope to further diversify its service portfolio, allowing it to increasingly become an end-to-end ICT solutions provider. It would be a major boost to its data centre services offering, giving it access to Business Connexion’s client base.

“Business Connexion has a strong and growing footprint in some of Africa’s key markets, including Nigeria and Kenya. The timing is not that surprising as there is growing consolidation in the ICT market, as evidenced by Vodacom’s acquisition of Neotel,” he explained.

However, he was concerned that the companies had different cultures, with Telkom being more influenced by the unions.

Telkom’s new leadership had not shied away from talk of job cuts where they deemed it was warranted. It would not be unexpected in a merger, especially if Telkom consolidates Business Connexion into its systems integration unit, Cybernest. However, the possibility or magnitude of job cuts is unknown, Mokenela added.

Marius Croucamp, a spokesman at Solidarity, said the deal could improve Telkom’s potential for profitable growth. “Telkom employees have been in the dark about the company’s strategy for the future. We believe the decision to acquire Business Connexion will give employees greater clarity.”

He said the deal would give Telkom the chance to expand its core business in a sustainable manner and to offer specialised services more easily.

Commenting on the dynamics of the transaction, Maseko said the acquisition “was in line with the global trend of IT and telecoms convergence”.

He added: “This trend had seen traditional IT firms merge with telecoms companies and was fundamental to the strategies of trail-blazing companies such as Google, Apple and Amazon.”

Telkom shares fell 1.76 percent, closing at R37.50 on the JSE yesterday, while Business Connexion shares climbed 7.39 percent, closing at R6.40. - Business Report


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