Faritec sells off assets

Embattled Faritec has sold off one of its business units, and is in the process of selling what was its third-largest revenue-spinner to a former director, ITWeb can exclusively report.

The company, which needs to raise R60 million to continue operating and implement a turnaround strategy, last week sold its Microsoft large account reseller business to First Technology.

Now Faritec is in talks to sell its managed services division to a company represented by former director Peter Winn. Documents in ITWeb's possession indicate the managed services unit has been independently valued at R3 million.

The unit is forecast to contribute R27 million to Faritec's revenue in the six months between April and September, according to the valuation report, dated 30 March. It is expected to add cash of R2 million to the company during the same time, but cash flows would become negative in September.

According to Faritec's latest annual report for 2009, managed services was the company's third-largest revenue earner, turning over R97.6 million, which was down from 2008's R109.2 million.

CEO Fanie van Rensburg says the sale of managed services is “in line with the company's strategy to divest from all non-core business activities and various options in this regard are being pursued by management”.

service comprises a client support centre, a project office, application services and infrastructure services.

However, according to the valuation report, there are concerns about whether the unit will be able to proceed as a going concern after October. Several contracts, such as deals with Incredible Connection and Barloworld, have been cancelled.

Peter Winn, who was Faritec's services director until 16 April, has submitted an offer to pay Faritec R3.13 million for the business in three tranches, the first of which is set to be paid on 3 May.

The offer, which is in ITWeb's possession, says the effective date of the deal would be this Saturday, assuming Faritec agrees to the sale by close of business on 30 April. Should conditions not be met by this date, the offer will lapse.

Winn's offer was submitted last Thursday. The following day, Faritec sent out at least one letter to its majority shareholder, Shoden. The letter states the board has been in talks with Winn to buy out the business from 16 April.

However, because Winn was a director, the deal would require shareholder approval and a general meeting. Van Rensburg writes in the letter that the company “has approached the JSE for a dispensation from issuing a circular to shareholders and convening a general meeting to approve the transaction”.

Van Rensburg explains that there is not “sufficient time to obtain shareholder approval through the normal process”. He further writes that there “have been a number of managed service contract cancellations over the past months”.

“It is the opinion of the board and management team that there will be further erosion of value and further contract cancellations should an agreement not be concluded within the next few days.”

Noah Greenhill, the JSE's senior GM of marketing and business development, says: “There is no application whatsoever, formal or otherwise, from Faritec.” However, he adds that this application may be in the pipeline and on its way to the bourse.

Van Rensburg says “to the extent that any of the assets of the business is being disposed of, any regulatory and other approval required will be sought and obtained”.

Winn tells ITWeb that the value of the business has been significantly eroded as there have recently been several contract cancellations. He says the unit now makes far less than it used to, as there are only three deals in place at the moment.

He adds that the sale will not go through unless all regulatory and governance aspects, including the JSE granting the exemption, have been followed. However, there are only two days left for Faritec to receive all the necessary approvals, Winn points out.

Winn is aware that the offer is a related party transaction, and says he will not conclude the deal without JSE and shareholder approval.

However, he says it is up to the JSE to decide whether minority shareholders need to be informed. Three-quarters of Faritec is owned by three shareholders, says Winn.

Shareholder activist Theo Botha argues that the sale “has to be put to shareholders” as it is not fair to leave minority shareholders in the dark. He adds that Faritec also has an obligation to tell shareholders that the business unit is under pressure and not performing.

Faritec has also sold its Microsoft business to First Technology. CEO Arnold Sharp confirms that the deal went through last Wednesday. However, he would not disclose the value of the purchase.

Sharp says he bought the company because it “significantly increases First Technology's strategic position in large account reselling”.

Mark Reynolds, head of the Microsoft SA's small and mid-market solutions and partner business, says: “First Technology has a strong track record as an accredited Microsoft large account reseller in SA.

“We are currently working with both Faritec and First Technology to ensure a seamless transition for all customers impacted.”