Time for Business Connexion to regroup
Watt stepped down after taking the company to the brink of a potential takeover by Telkom — yielding a handsome profit for investors who sold when the bid price of R9,25 sent Business Connexion’s share price soaring.
Last week the deal was scuppered by the Competition Tribunal, and Watt is no doubt immensely relieved he is not the one left to pick up the pieces.
Now Business Connexion must rebuild itself after 15 months of utter uncertainty, and that task lies with the new CEO, Benjamin Mophatlane.
The far younger and less experienced Mophatlane needs to prove his value anyway, and this turn of events certainly gives him a unique opportunity to do that.
So what exactly will he do?
The board will firm up the plan next week, but Mophatlane is in favour of locking down the company against any further takeover attempts.
The company needs what he calls an “anchor tenant” — a major shareholder to support it for the future and not flog its shares at the first hint of a profit.
Mophatlane’s preference is to find investors with no plans to hijack the business, which is why a black group or private equity fund are appealing options.
“We need to consolidate our shareholders and that could mean introducing a women’s empowerment group and making sure key managers are invested in the business,” he says.
“We have always made it clear we are not for sale, but we are in a situation that when a potential bidder goes to shareholders it’s not under the control of myself or the board. I’d prefer that we are in control of our own destiny.”
Existing investors include Stanlib, Coronation and Sanlam.
A lock-down would be a snub to Bytes Technology, which has wanted to take over Business Connexion for years. CEO Dave Redshaw has been waiting for Telkom to be chased away so he can close the deal instead. With its shares being pounded down by 11% to R6,80, a far cheaper offer could clinch a deal.
That idea puts Mophatlane on the defensive. “It’s public knowledge that Bytes is interested, but we need to get the business back in focus before going through another process like that. In the past 15 months we haven’t been able to focus properly on the business.” His first goal is to shore up its network communications division, which took a heavy battering during the Telkom bid.
Some customers worried about how its operations would fare under a new owner, while others opted to buy all their telecoms services from Telkom, figuring Business Connexion would become an unnecessary middle man if Telkom prevailed.
During the tribunal hearings, advocate David Unterhalter said Business Connexion’s communications division was not a great success. Its major client Bidvest was unhappy with the service and two other major customers, Sasol and Edcon, had awarded contracts to Telkom instead.
Unterhalter made the point to persuade the tribunal that Telkom’s bid would not cause any significant loss of competition. But his comments highlighted the slow decline that Business Connexion now needs to rectify. Mophatlane also wants to expand its data centres, which host the IT operations of its customers and act as disaster recovery facilities.
Redshaw says several companies including Bytes may be keen to buy Business Connexion, but he understands the reluctance to begin fresh negotiations instantly.
“I’m not into enemy action and taking over people who don’t want to be merged. Any deal has to be wanted by both parties and if they are not keen on it, I’m not about to create a hostile situation,” he says. “That wouldn’t be good for anybody.”
What Telkom will do next is a deeper mystery. Telkom is in a precarious position because it lacks a CEO after Papi Molotsane was forced out a few weeks ago, leaving a leadership vacuum at a crucial time.
Telkom had raised the idea of buying another IT group if its bid was vetoed. But the tribunal has effectively thwarted its aspirations to acquire any large IT company, Redshaw believes. “They are saying Telkom already has a strong enough position and shouldn’t be allowed to entrench itself any more.” The tribunal has yet to release its reasons for vetoing the deal, but any move to buy another IT firm could be overruled for the same reasons that made this deal unacceptable.
Telkom needs an IT division to enhance its traditional fixed-line services and expand further into Africa by offering fixed and mobile telephony backed by secure networking and data storage services. Yet right now even its ability to offer mobile services looks shaky if it is forced to sell its 50% stake in Vodacom, which is eager to be set free.
Telkom’s only statement so far said it would continue to explore opportunities to boost its offerings to provide the full spectrum of IT and telecommunications services essential to diversify its revenues and meet the market’s future needs.
Telkom faces other serious challenges. Both MTN and Vodacom are laying their own cables because Telkom will not supply enough cheap bandwidth to link their cellular base stations. New operator Neotel should make its presence felt at some stage, and new wireless technologies are giving data carriers a cheaper way of reaching customers.
Analyst Irnest Kaplan believes Business Connexion should focus on repairing the damage caused by the uncertainty about the acquisition, which lost it many key staff and some clients.
“It’s sad that the proposed merger destroyed so much morale and value.
“It will no doubt be challenging to undo the damage, but with Business Connexion’s strong position in many key areas and their high reputation among key clients, we believe they can do it,” he says.
As for Telkom, it must find another way to avoid losing business to Neotel and to become an indispensable partner to large corporations since it can no longer capitalise on the services that Business Connexion provided to those clients, Kaplan says.
One possibility is that Telkom will decide to work with IT players, rather than try the more aggressive route of taking them over. And Business Connexion may opt to go forward as a relatively formidable solo entity.
Given the turmoil that both are emerging from, taking a breather to lick their wounds and recover on their own seems the sensible option.
Loading ...