OPPONENTS of Telkom’s proposed R2,4bn takeover of Business Connexion have won a recommendation from the Competition Commission that the acquisition should be vetoed.
The deal for the de facto telecoms monopoly to take over one of SA’s leading information technology (IT) players raised concern, including protests from the 100-member Internet Service Providers’ Association. After months of deliberation the commission has agreed — and recommended the prohibition of the deal based on anticompetitive concerns.
The deal’s opponents argued that Telkom was not above using anticompetitive practices, and absorbing an IT company would let it offer a range of services at discounted prices with which no rival could compete.
“It was the right thing to do, and we are very happy with the decision,” said Angus McMillan, CEO of Internet Solutions.
“It would have been difficult to approve the deal when the high court had found Telkom guilty of anticompetitive behaviour two years ago for the way it charged other internet service providers for access to its telecommunications backbone.”
The commission’s decision has been passed on to the Competition Tribunal, which will re-examine the case and hold public hearings if Telkom and Business Connexion pursue the deal. But those hearings will not begin until January, further delaying a lengthy bid that has unnerved some Business Connexion staff and left Telkom unable to capitalise on the technology skills it is anxious to acquire.
Two options are now open to the potential partners: they can either try to swing a favourable verdict from the tribunal, or they can walk away. Continuing the process with the tribunal would be another long step where opponents, buoyed by their success with the commission, would present fierce opposition.
Business Connexion CEO Peter Watt (pictured) said at the weekend that the commission probably disapproved of the deal because it had raised so many protests.
“It’s been seen as a very controversial move by Telkom so it would end up with the tribunal.
anyway so the public can make their comments irrespective of what the commission said,” he said.
Yet Watt said pressure from shareholders keen to pocket Telkom’s bid of R9 a share plus a dividend of 25c each could see the parties continue their quest for regulatory approval.
Telkom and Business Connexion had set a completion deadline of December 15, but that could be extended by mutual consent.
Watt believes his shareholders may vote to press ahead when a vote is held on November 30.
Rival technology player Bytes is hoping the Telkom deal will fail so it can buy Business Connexion itself, but Bytes is not willing to pay the high premium that Telkom bid.
Telkom could opt not to continue, and turn its attention to a smaller, less controversial acquisition instead. It may prefer to bid for arivia.kom, the state-owned technology company that Transnet and Eskom are selling.
But Watt said arivia.kom would not give Telkom the private sector presence it was chasing. Only about 10% of arivia.kom’s work comes from private companies, and Telkom needs to increase the range of voice and data services it offers to the private sector to stem the declining revenue from traditional voice calls.
“Arivia.kom isn’t the kind of business that Telkom wants to be in,” Watt said. “It is activity in the private sector where we operate that Telkom wants.”