BCX considers ways of fending off other suitors
Benjamin Mophatlane, incoming CEO of IT group Business Connection (JSE:BCX), has expressed relief at the termination of the proposed takeover by communications giant Telkom (JSE:TKG) and says his group is working towards ways of preventing similar takeover bids by other companies.
Analysts, meanwhile, suggest that the removal of Telkom from the picture opens the way for other potential suitors. Speaking on the Moneyweb Power Hour, Mophatlane said that BCX may indeed find itself in a situation “where somebody is still interested” in buying the business. But the group is planning to consolidate is shareholding to ensure that it is “not always the subject of takeovers, whether hostile or friendly”.
Investec Asset Managerment’s John Biccard considers the calling off by the Competition Tribunal of the takeover as “pretty good news for management and, in the long term, for BCX”: He says a look at the IT group’s financial statements of the past year or so suggests that it has been distracted by the merger.
“I think they would feel very relieved that they can return to business as normal, although you have to say that the likelihood of another buyer coming along is probably quite high, so they would have to start all over again.”
But Mophatlane points out that BCX has undergone a great deal of corporate activity over the past six months, which will “allow us to focus on the business, to allow us to grow”. He said the main imperative was to beef up the communications division.
Irnest Kaplan of Kaplan Equity Analysts argues that, despite the pressure and pain that BCX has experienced during the course of the takeover bid, including loss of staff and clients, it is in a “fantastic position in the market” and is a leader is some areas.
Kaplan commends the Competition Tribunal for its decision, arguing that a Telkom/BCX merger would have been a disservice to the industry.
Tony van Marken, group executive chairman of DataPro (JSE:DTP) – now Vox Telecom – agrees that the development is positive for the industry at large.
“I think that the transaction would have given Telkom further opportunity to bundle products together, cross-subsidise, etc, and we think that would have given them an unfair advantage in the marketplace.
“So I think there was widespread industry opposition to that deal, for good reason. And I think the Commission ruled correctly at the end of the day.”
Bad news for Telkom?
Commentators are divided over the implications for Telkom of not having been able to get its hands on BCX.
Kaplan says the news would not be a significant disappointment for Telkom, pointing out that the BCX turnover is in the order of R3bn, compared with Telkom’s fixed-line turnover of R30-R40bn. Similarly, Telkom boasts margins of in the thirties, while those of BCX are a fraction of that.
However, the drawcard for Telkom would have been in the relationship advantage that BCX has, he says.
“I think where Telkom wanted to get their hands on BCX was to get relationships much higher in the food chain, in the customers, where BCX deals a lot at board level, and Telkom doesn’t really too much board level dealings with its customers.”
Biccard believes that Telkom’s inability to get access to this market could be a problem.
He says Telkom has made it clear that it wants to move into IT as a growth area.
“Telkom have a problem that they’ve got lots of cash flow and a pretty strong balance sheet, but a core business that’s under a lot of competition and pressure. They really want to use those cash flows to diversify into similar areas, where the growth is higher, which I guess is BCX and similar companies.”
Biccard suggests that Telkom will continue to look for such opportunities. Competition considerations in the local market may force it to look offshore. However, since Telkom’s business is South African, the potential level of integration with an offshore business would be limited.
“So it is a bit of a problem for them.”
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