T-Systems bags arivia - almost

Johannesburg, 07 Jan 2009

T-Systems SA has received the nod from government stakeholders for the purchase of state IT services provider arivia.kom, meaning that the deal is almost as good as done.

The company has qualified for the next phase of the transaction, which will explore terms and conditions, as well as commercial details of the deal, suggesting the privatisation could effectively be concluded by the first quarter of this year.

An internal e-mail, sent to arivia staff by acting CEO Kiruben Pillay, dated 19 December, was leaked to ITWeb by a source close to the transaction.

“Eskom and Transnet are pleased to advise that T-Systems SA has been down selected to the next phase of the arivia.kom outsource/sale transaction. During this phase, Eskom and Transnet will negotiate with T-Systems SA on the terms and conditions and commercial details relating to this transaction.”

Pillay advises that further detailed (internal) communication, regarding the negotiation process, will be provided as soon as the required governance sign-off has been obtained.

He adds that T-Systems' selection to this phase of negotiations “remains subject to the successful negotiation and execution of both the outsourcing agreement with each of Eskom and Transnet, and the sale of shares agreement. Both Eskom and Transnet reserve the right to engage and/or negotiate with the alternative bidder.”

Pillay also states that Eskom and Transnet will, in due course, engage with arivia.kom on the appropriate and required activities that will form part of the negotiation phase.

Sweet deal

The protracted sales process started in early 2006 and stakeholders Transnet and Eskom, respectively holding 41.5% and 58.5% in the company, have pushed back the finalisation deadline several times during this period.

Currently in the running for the company are T-Systems and Dimension Data - the “alternative bidder” referred to in Pillay's e-mail. Three other bidders - IBM, Siemens and Accenture - have fallen by the wayside during the initial stages of bidding.

Pillay's reference to the “negotiation and execution of both the outsourcing agreement with each of Eskom and Transnet” alludes to the two large-scale outsourcing contracts, for the provision of IT services to the electricity and transport utilities by arivia.

The five-year outsourcing agreements are worth around R400 million and R200 million a year for Eskom and Transnet, respectively. Since the start of the privatisation process, well-placed sources have expressed reservations about arivia's attractiveness to potential buyers, saying it would most likely be a hard sell. The inclusion of the outsourcing deals as part of the arivia package was thus seen as government's effort to sweeten the deal for potential bidders.

While the sales bid experienced various delays since being announced as part of government's general privatisation drive - originally championed by then public enterprises minister Alec Erwin - little has been communicated to industry by government.

So far, the sale has been characterised by a media blackout on the part of arivia's shareholders, who have steadfastly refused to comment throughout the process. Similarly, bidders have been gagged through non-disclosure agreements.

Thus, T-Systems would not comment on the e-mail sent out by Pillay. Meanwhile, a query sent to Transnet at the end of last year, seeking an update on the transaction, has gone unanswered.