Business Connexion (BCX) has made a R614m offer to buy up a big portion of the assets of the UCS Group.
BCX will settle the deal through the issue of 101m new shares, with R30m to be paid in cash. After the deal is concluded, UCS shareholders will own 25% plus one share in BCX.
UCS has effectively got two major business segments, one in software development and one in services. They serve mainly the retail and manufacturing markets.
BCX is buying UCS’s services division, bolstering its own services businesses.
The companies included in the deal are Accsys, CEB Maintenance, Destiny E-Commerce, UCS Solutions and UCS Technology Services.
UCS’s share price shot up 11% after the announcement on Wednesday morning, sending its market value up from R580m to R650m.
Kaplan Equity Analysts MD Irnest Kaplan says BCX isn’t getting UCS’s services businesses for a steal. He says the shares that will be issued by BCX to UCS shareholders were settled on the volume-weighted share price when the deal was signed.
“BCX’s share price may be higher when the deal is actually concluded, meaning that the actual value will be far higher than it is now,” he says. However, he says that despite the price, it is an “exceptional strategic move” for both BCX and UCS.
“Consider that many local retailers are quickly moving deeper into the continent,” Kaplan says. Looking at Shoprite alone, BCX could be making a play for a stronger continental presence, he says.
Walmart’s courting of Massmart could also result in the SA retail group expanding more aggressively in Africa, potentially giving BCX new opportunities.
For UCS, Kaplan says the group will now be able to focus its energies on growing its software business, which contains valuable intellectual property.
UCS will remain listed on the JSE.
Both companies have been in discussions for several months and UCS deputy CEO Dean Sparrow says the deal will create good value for UCS shareholders, who will now own shares in a well traded IT counter.
UCS senior management will continue to manage the UCS retail services businesses and the businesses will still trade under the UCS brand.
BCX says the deal will allow its to focus on offering on-demand cloud computing services for the retail market. The company has invested more than R200m in two hi-tech data centres in Midrand as part of its plans to offer more cloud-based services.
BCX CEO Benjamin Mophatlane hints that his may form a strategic partnership with what will remain of UCS, a move which Kaplan says could result in the latter taking advantage of the former’s expansion on the continent.
The deal must still need to be vetted by shareholders of both groups and be approved by the competition authorities.
Mophatlane hopes to have the transaction completed in the first quarter of 2011. — Candice Jones, TechCentral
- See also: BCX puts its head in the cloud