Spicer, IQ deal called off

By Phillip de Wet for Spicer

Johannesburg, 22 Feb 2000

Spicer Holdings and the IQ Business Group have called off their proposed R1.4 billion merger after Spicer admitted to trouble at recent UK investment MIS Corporate Defence Solutions (CDS) and the local Spicer Customer Relationship Solutions (CRS) division. The companies blame "recent events within Spicer" for the cancellation.

IQ says it is not concerned, but the Spicer share price seems to have entered freefall. At noon Spicer shares were trading at 38c, down 15c on the day. The share showed extreme volatility during trading.

When the companies announced their plans in December last year, a purchase price of R400 million was estimated for the IQ business, to be settled with Spicer shares issued at R2.24. The share was then trading at R1.55. Later developments saw the IQ price amended to a maximum of R635 million, with shares issued at R1.75. At that point the deal was already turning sour for IQ, says MD Johan Roets.

"The whole idea was to create a company with a market cap of more than R1 billion," Roets says. "I have always seen a billion as critical mass for an IT company. When the value fell under that it already defeated the purpose."

That, combined with what analysts have described as severe management problems, made the merger less attractive. "We didn't want to use management capacity to run around and help other people out with their troubles," Roets says.

The management of the companies claim to have parted amicably and will consider future partnerships, and perhaps even restarting merger negotiations. IQ says it has expressed interest in certain Spicer assets.

Spicer says irregularities uncovered at MIS CDS in the UK will see it lose money on its investment in the company in the short-term. Mike Higgo, MD of Spicer CRS, resigned from the company in mid-February, citing personality differences. It was earlier reported that Higgo had been suspended pending an internal investigation.

Sas du Toit, Spicer executive chairman, says the harsh lessons learned from the failed acquisition of Brainware last year and now from the IQ deal will stick with the company. "We will take some of this with us in the future," he says. "The first part of an acquisition is definitely more important than anything that comes after it." He says MIS has taught the company that proper management control is essential.

"In a situation like this only the listed company can be hurt," Du Toit says. "Unless both parties are emotionally committed it is very negative if the deal is not completed."

Unlisted IQ does not expect to suffer as a consequence of the failed merger, and Roets says it even resolved the problem of IQ stakeholders who would have become less represented in the new entity. "We don't have much of an egg to unscramble," he says.