The Comparex board, recently reconstituted after a boardroom coup, has decided to protect the group`s cash by selling the loss-making European operations to management.
The operations, which hold 70 million euros in cash, will be sold for 8.5 million euros to Montefiore, a company formed to house the interests of the staff involved in the management buyout, including Comparex CEO Rian du Plessis and executive director John Cohen.
The bulk of the 70 million euros is needed to fund Comparex Europe`s working capital, current and forecast trading losses, and contingent liabilities. The disposal is also a cheaper option than closing down the operations and retrenching staff.
If the deal, which is subject to shareholder and regulatory approval, goes through, the European executive directors will resign from the Comparex board and the group will be left with its cash and its South African operation, Comparex Africa.
The European disposal may see the group re-evaluating the proposed unbundling of the black empowerment-focused Comparex Africa.
The current board was constituted in June after institutional shareholders forced the resignation of five non-executive directors, replacing them with their own nominees.
The move came after the institutions - Allan Gray, Sanlam and Investec - became dissatisfied with the fact that Comparex was sitting on a large cash pile, last disclosed as about R2.4 billion.
Comparex had said previously that it had decided to retain the cash to build the European operations.
"Although broad-based IT consulting has attractive growth rates and margins, it is a highly competitive sector and Comparex Europe has taken longer than expected to restructure its business model," the group says.
"Comparex Europe will therefore report a substantial trading loss for the year ended 31 May 2002 and its return to profitability is dependent upon a recovery in IT spending and the successful completion of its repositioning strategy.
"The effects of this repositioning strategy are only expected to bear fruit in the medium-term."
The Comparex share, which lost 3c to close at 620c on the JSE yesterday, was trading another 35c or 5.65% down at 585c this morning.
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