How much will arivia stake sell for?

By Dave Glazier for arivia.kom
Johannesburg, 30 Oct 2006

Following the announcement late on Friday afternoon that Transnet and Eskom will dispose of their entire shareholding of arivia.kom, speculation builds over the selling price of the state IT firm and who will be the likely buyers.

Transnet communications GM John Dludlu and ministerial spokesman for the Department of Public Enterprises Gaynor Kast refuse to comment on the value of arivia.

However, based on the fact that defence parastatal Denel`s 23% stake in the company was sold for R130 million earlier this year, it is estimated that arivia is worth R566 million.

However, this would be an under-valuation, notes BMI-TechKnowledge analyst Roy Blume. "At R600 million, it`s an attractive buy, but I can`t see it being sold for that little - I think it would more likely be a couple of billion."

Blume has no solid predictions about who the buyer would be, but says it is possible an empowerment consortium would be involved.

However, he notes the risks involved in investing in arivia. "If it loses one of its major clients in the short-term, it would be in trouble."

Incestuous relationships

Blume`s colleague, analyst Natalie Bryden, believes the share sale may force arivia to diversify into new vertical sectors, rather than focus so much on the transportation and utilities sector.

"It will be forced to spread its wings - but arivia has been trying to diversify for some time, and there are many other industries where it could add value," she adds.

Craig Terblanche, business and technology advisor at Marketworks, says it is reasonable to expect an empowerment consortium to take at least 50% plus one share of the company, adding that it is a good development for the market.

Referring to parastatal ownership of the state IT company, he says: "These kind of incestuous relationships are best undone, rather than maintained."

Moving forward

Terblanche adds: "I would imagine that Eskom would offer the [prospective] purchaser some assurance that it will continue to do business with arivia.kom for a period of time - which would make the share offer very attractive, since Eskom represents a great deal of business for arivia."

On the subject of new operational business models, Dludlu is also silent, saying: "It would be the prerogative of the new owners to chart the future of the company.

"The shareholders have agreed a process where all prospective bidders will receive similar levels of information simultaneously - it would be exceedingly inappropriate of us to undermine the integrity of this process by selectively disclosing information at this stage."

Prospective investors will be invited to express interest, and, after the payment of a nominal fee, will be given more information.

Declining revenue

In arivia`s annual report, released recently, CFO Nicky Mogorosi reported total revenue for the year to end March of R1.5 billion. This is down 7.1% from the previous financial year.

Mogorosi attributes this decline to "continued pressure by key clients to reduce costs, and a tough and highly competitive market with limited new business wins".

Eskom Enterprises and Transnet own 58.5% and 41.5% of arivia`s shares, respectively.

"We can`t reveal further details [on the disinvestments] - those details will be contained in an information memorandum to all interested investors," concludes Dludlu.