Lawyers sharpen their wits

Lengthy bat­tle ahead over Telkom/Busi­ness Con­nex­ion deal

Finweek English Edition - - Companies & markets - BELINDA AN­DER­SON

LENGTHY COM­PE­TI­TION Tri­bunal hear­ings like those into the pro­posed Telkom/ Busi­ness Con­nex­ion (BCX) merger must be manna from heaven for lawyers and ad­vo­cates such as David Un­ter­hal­ter, Al­fred Cock­rell and Arnold Subel. In fact, if you’ve been to a few, you’ll have seen them in ac­tion, vo­cif­er­ously ar­gu­ing for and against mat­ters as con­vinc­ingly as if they be­lieved them to be the gospel truth.

For any lay­man it’s dif­fi­cult to judge from the hear­ings which way a de­ci­sion is go­ing to go – both sides are of­ten equally con­vinc­ing due to the ex­per­tise of ex­pen­sive se­nior coun­sel.

To take a po­si­tion on the out­come based on hav­ing at­tended some of the hear­ings and read­ing the doc­u­men­ta­tion would ap­pear to be a 50:50 gam­ble. But the mar­ket has for some time not been con­fi­dent the deal will go ahead – Busi­ness Con­nex­ion shares are trad­ing well be­low Telkom’s of­fer price.

At least one can be as­sured of a legally sound and well-con­sid­ered ver­dict in the hands of Tri­bunal chair­man David Lewis and his team. Lewis has built up a solid rep­u­ta­tion for fair­ness and fear­less­ness when tough de­ci­sions need to be made.

Nei­ther can any­one be ac­cused of rush­ing through the process. The Telkom/BCX hear­ings are sched­uled to last a month. And bear­ing in mind the amount of work that’s gone into pre­par­ing for oral pre­sen­ta­tions, the process has gone on much longer.

In ad­di­tion to the com­pany wit­nesses the var­i­ous par­ties will call to back up their po­si­tions, there are also a num­ber of ex­pert re­ports that have been com­mis­sioned by the par­ties to lend weight to their views on the anti-com­pet­i­tive or oth­er­wise ef­fects of the deal.

Th­ese in­clude re­ports by Lon­don-based anti-trust con­sul­tants CRA In­ter­na­tional (as an ex­pert wit­ness state­ment for Telkom and Busi­ness Con­nex­ion), eco­nomics con­sult­ing firm Ge­n­e­sis An­a­lyt­ics (pre­pared for the in­ter­ven­ers), Sally van Si­clen (pre­pared for Di­men­sion Data) and econ­o­mist Emanuele Gio­van­netti (pre­pared for the Com­pe­ti­tion Com­mis­sion).

Most of the re­ports are avail­able in a non-con­fi­den­tial for­mat, with blacked-out bits that in­evitably leave one feel­ing like a reader of the Rand Daily Mail back in the bad old days. Un­der­stand­ably, this is done to pro­tect the var­i­ous play­ers’ com­pet­i­tive in­for­ma­tion, and doesn’t de­tract from the con­clu­sions the var­i­ous par­ties draw.

The ar­gu­ments are un­doubt­edly com­plex and can­not be dis­tilled into a sin­gle page. But, in essence, it’s all about whether Telkom buy­ing Busi­ness Con­nex­ion would pre­vent other IT ser­vices com­pa­nies from com­pet­ing ef­fec­tively.

There’s no de­bate about the mer­its of Telkom’s strat­egy of want­ing to en­ter the IT ser­vices mar­ket and es­tab­lish a pres­ence quickly by ac­qui­si­tion – this echoes strate­gies adopted by in­ter­na­tional com­pa­nies in­clud­ing France Tele­com, Deutsche Telekom, BT, Bell Canada and many oth­ers.

But, while Telkom wants to do so with a bang – by buy­ing the big­gest player in this space – oth­ers be­lieve it should be forced to build its ITS ca­pac­ity or­gan­i­cally.

The Com­pe­ti­tion Com­mis­sion rec­om­mended that the merger be pro­hib­ited be­cause it would “sub­stan­tially pre­vent or lessen com­pe­ti­tion and have a neg­a­tive ef­fect on the pub­lic in­ter­est…with­out any ef­fi­cien­cies to out­weigh the neg­a­tive ef­fects”. Nei­ther were there any reme­dies – such as re­quir­ing Busi­ness Con­nex­ion to sell its Com­mu­ni­ca­tions busi­ness (the old Bidnet), for ex­am­ple – that could lessen the anti-com­pet­i­tive ef­fects, it said.

The Ge­n­e­sis re­port backs this up, say­ing that al­low­ing Telkom to merge with BCX would strengthen its po­si­tion be­fore lib­er­al­i­sa­tion and ef­fec­tive reg­u­la­tion had the op­por­tu­nity to cre­ate a more com­pet­i­tive com­mu­ni­ca­tions mar­ket. “Per­mit­ting Telkom to grow or­gan­i­cally into the IT ser­vice ar­eas and IT com­pa­nies to grow or­gan­i­cally into the tele­coms arena is far more likely to re­sult in pro-com­pet­i­tive out­comes than a merger of the largest com­pa­nies in both parts of the mar­ket.”

The CRA re­port, how­ever, tries to re­but all of the var­i­ous con­cerns, claim­ing the deal wouldn’t have anti-com­pet­i­tive ef­fects: “The ser­vices of­fered by the two firms are largely com­ple­men­tary, im­ply­ing that there would be only a mi­nor di­rect loss of com­pe­ti­tion aris­ing from the trans­ac­tion.”

Tech­ni­cally, CRA (and Telkom and BCX) may – or may not – be cor­rect. That’s up to Lewis and his team to de­cide.

But, var­i­ous par­tic­i­pants pointed to Telkom’s track record of lit­i­ga­tion against those seek­ing to chal­lenge its po­si­tion.

Scu­tin­is­ing the ar­gu­ments. David Lewis

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