UCS considers empowerment options

Johannesburg, 02 Jan 2007

JSE-listed software firm UCS has said that it is evaluating the next stage of its black economic-empowerment (BEE) strategy.

The company told shareholders towards the end of last year that it had entered into negotiations with a party that may see the introduction of a BEE partner at group level, an apparent shift from its previous strategy.

UCS, which operates through its software and solutions and services divisions, is a group of IT businesses focused on the manufacturing and provision of software solutions and outsourcing services in retail and other niche markets.

The company anticipates that the transaction will be concluded at commercial values with no discount or debt funding. However, no further details were available as the company is currently trading under cautionary.

Subsidiary level

UCS's previous stated BEE strategy was to implement BEE equity deals at operating subsidiary level, with a particular focus on acquisitions and or mergers that are expected to deliver synergies and mutual value-add.

Group CEO John Bright has previously stated that the company's strategy "is designed to address all aspects of BEE, not just equity".

In May, UCS said that it had concluded a 25.1% empowerment deal in UCS Solutions. The arrangement saw it acquire 100% of Quadrant Consulting Group and 60% of TSS Managed Services from black empowerment company Tactical Software Systems for some R58 million.

At the time, Richard Newton, CEO of UCS Solutions, said that combining the entities would create "a strong IT services market participant with significant SAP capabilities. TSS MS broadens our base of infrastructure services and introduces new markets".

Strategy change?

In the firm's 2005 Annual Report - the latest report available on its Web site - it states that empowerment and transformation are strategic imperatives for the group.

However, the Department of Trade and Industry's (DTI) release of phase one of the codes of good practise in 2005 required a review of its BEE strategy. The company decided that the group's strategy would be to continue driving BEE initiatives at a subsidiary company level.

"The recently published Codes of Good Practice from the DTI contain sections that are not yet complete. Once the final version is promulgated, it is likely to have an effect on the current draft of the ICT Charter and it is therefore possible that UCS will need to fine-tune its strategy going forward," wrote Bright.

2005 saw the company conclude a BEE equity transaction in subsidiary UKS, which was effective in October of that year.

Bright said that this deal saw a consortium of staff acquire 38% of the equity in UKS, with the BEE component amounting to an effective 30% stake.

The company's shares closed at R3.60 on the day of the announcement but closed 20c lower the following day. In early morning trade today, UCS was trading at R3.59, 1c lower than the last close on 29 December.