Midrand-based SA arm of the Deutsche Telekom ICT business, T-Systems, has finally confirmed its purchase of partially government owned service provider, arivia.kom.
ITWeb reported in late November that the Competition Authorities had given the green light on the deal, bringing an end to one of the most anticipated deals in the local ICT sector. Despite the confirmation by the Competition Commission, T-Systems has been quiet about the deal until now.
According to a statement by the company yesterday afternoon, T-Systems South Africa will acquire 100% of the shareholding in arivia, which used to be held by state-owned businesses - Eskom which held 58.5% of the company and Transnet which owned 41.5%.
The sale was first announced in October 2006 by then public enterprises minister Alec Erwin, who spearheaded a privatisation drive that saw the state dispose of non-core assets. The resulting tender was aimed at selecting a leading ICT services provider that could take over the IT services contracts as well as the shareholding in arivia.
Big business
Both Eskom and Transnet are currently arivia's largest clients and the contracts will be migrated to the T-Systems portfolio, along with the acquisition. The five-year outsourcing agreements are reportedly worth around R400 million and R200 million a year, respectively.
It is the first time T-Systems has confirmed that the contracts will be maintained, however, the company has not confirmed the value of the deals.
T-Systems will also take on Airports Company SA, the State IT Agency and the Department of Water and Environmental Affairs, all of which are currently clients of arivia.
“We are very excited about this opportunity. Not only does it mark a significant milestone in T-Systems' long-term growth strategy, but it also affords us an opportunity to be part of enhancing the IT operation of two of the most important contributors to the success of our economy. We are committed to building long-term, mutually beneficial relationships, as well as delivering continuous improvements through the services we offer,” says Mardia van der Walt-Korsten, MD of T-Systems South Africa.
The acquisition has been financed by T-Systems SA's principal, Deutsche Telekom, and the South African operation shall retain its 30% Black Economic Empowerment structure.
Clawing back
T-Systems received the nod from government for the purchase of arivia as far back as January, when it qualified for the next phase of the transaction, which was intended to explore terms and conditions, as well as commercial details of the deal.
The company pipped four rival suitors to the post, after initial interest was shown by Dimension Data, IBM, Siemens and Accenture. However, these soon fell by the wayside, and rumours surfaced that the state-owned enterprise was worth little, bar the two lucrative outsourcing contracts.
But it appears the company has clawed its way back to profitability, after its earnings went into a freefall in 2004. In the 2006/7 financial year, arivia's losses stabilised at R5 million a month and it has seen a recent recovery. At company-level, arivia reported revenue of R1.3 billion at for the 2009 financial year, while profit before tax amounted to R87 million - up from a loss of R32.7 million in 2007. Similarly, at group-level, arivia achieved revenue of R1.9 billion in the 2009 financial year and profit before tax of R141 million.
Commenting on the deal, Dr Steve Lennon, MD for Eskom's corporate services division says: “For Eskom, this is an important milestone, a step in the right direction. In these challenging times of our company's history, it is important for Eskom to focus on its core business.”
It is still unclear what will happen with arivia's subsidiary businesses, arivia.kom Consulting and Csiper Consulting, however, they were expected to be sold to T-Systems as part of the deal.
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