Is Telkom finally letting go of its foray into the rest of Africa? - CNBC Africa

Is Telkom finally letting go of its foray into the rest of Africa?

Special Report

by Gugu Lourie 0

The reason behind the deal is to create an ICT company, which will address the needs of South African businesses. PHOTO: Telkom

Telkom – which is in the process of turning around its ailing core fixed-line telephone business – has put in a bid to buy JSE-listed technology group Business Connexion (BCX).

(READ MORE: Telkom looks to acquire BCX issued shares)

[DATA TKG:Telkom SA SOC Limited] is prepared to fork out a cool 2.7-billion rand for BCX, which is led by a young and prodigious CEO Benjamin Mophatlane.

The telecommunications company says the rationale for the deal is to create an ICT company, which will address the technology and communication needs of South African businesses.

Sipho Maseko, the CEO of Telkom, and his management team are pursuing several initiatives in a coordinated manner to restore Telkom’s financial health. His predecessors previously declared that the rest of the continent was key to their growth strategy.

However, Telkom has learnt expensive lessons about expanding into the rest of Africa. It lost more than seven billion rand when it made forays into Africa’s biggest economy, Nigeria, through its acquisition of Multi-Links, which was a cash guzzling operation and was forced to write off billions before cutting losses in a fire sale. It also sold its loss-making Pan African business, iWayAfrica and Africa Online Mauritius.

Maseko and his executive team, led by the chairman Jabu Mabuza, announced recently that they were buying [DATA BCX:Business Connexion Group] to provide scale in Telkom’s IT services, which will help reinforce its core connectivity business and enhance its convergence strategy.

So, is Telkom letting go of its dreams to be a central player in shaping Africa’s ICT industry?

Those in the know believe Telkom’s offer to buy BCX is likely to throw the company back into devising an Africa strategy, which will make it more relevant to the continent.

But this time it will be better for Telkom because through its acquisition of BCX it will gain a profitable African footprint.

Furthermore, it will be in partnership with a company that is locally based and yet understands how to operate successfully on the continent.

A BCX-owned by Africa’s largest fixed-line telephone group would give access to a group that is already established in the continent and is aggressively expanding into new markets.

BCX, which has already made inroads into Botswana, Kenya, Mozambique, Namibia, Nigeria, Tanzania and Zambia, is on the prowl for more acquisitions into existing and new markets in Africa.

Recently BCX acquired 100 per cent of a managed print-service business and a well-established Canon distributor operating in West Africa known as Panabiz Nigeria, and 100 per cent of Botswana’s Ultimate Solutions – a market leader in Point of Sale solutions.

The company led by Mophatlane has also opened a new business in Kenya, which was picking up on the roll-out of software solutions for municipalities.

Furthermore, BCX entered into an agreement to acquire a 30 per cent stake in African Arete Proprietary Limited, a services solutions business focussed on the SME market. This move will complement BCX's existing portfolio in KwaZulu-Natal.

Mophatlane’s BCX’s has been growing the business organically and by acquisitions in Africa.

In the six months to end-February 2014, BCX’s total equity and liabilities stood at 3.7 billion rand, which the company could easily convert into long-term funding for acquisitions.

If Telkom’s transaction to buy BCX is given a nod by regulatory authorities – which they should as the deal is likely to benefit consumers, corporates and the African continent – Telkom will put its vast network to greater use.

If used correctly BCX’s balance sheet will enable Telkom/BCX to expand converge services in South Africa and the rest of the continent.  

In short, if the Telkom deal is approved it will be a good news for shareholders of both companies.

Telkom will technically be using BCX’s existing footprint and targeted markets to recapture its lost South African market and to re-launch itself as a serious player in the rest of the continent.

This could only be good for Africa’s markets, where fixed-line networks have been rendered useless because of the rapid expansion of mobile telephone services.