Tata keeps options open

By Nicola Mawson, Contributing journalist

Johannesburg, 26 Feb 2007

Indian industrial conglomerate Tata may be eyeing arivia.kom, after the local IT services firm was put on the market earlier this month.

A Tata group company, Tata Consultancy Services (TCS), has been cited as a possible contender for arivia, after Eskom and Transnet announced they were inviting expressions of interest.

Resident manager of TCS's local subsidiary, Arun Sharma, says he cannot disclose whether the company is bidding for arivia, as this is confidential.

However, TCS, which ends its financial year in March, is "keeping an eye on the market". Sharma says TCS is not ignoring news of arivia's sale and hints at possible corporate activity in other areas. Details may become clearer once the giant's annual results are out, he says.

Bids for arivia, held by Eskom with 58.5% and Transnet with 41.5%, are expected to be between R300 million to R500 million and must be in by 14 March. In its 2006 annual report, arivia records revenue of R1.48 billion and profit of R20.1 million.

Perfect fit

Tata, a $17.8 billion company, has an indirect 26.01% stake in Neotel and an indirect 26% stake in broadband newcomer Infraco.

One analyst - who asked not to be named - says it would make perfect sense for TCS or another Tata subsidiary to buy out arivia. "It would slot in quite neatly with other aspects of Neotel's business at a later stage."

In addition, the analyst says should the deal go through before Telkom's bid to buy out Business Connexion is approved by the Competition Tribunal, objections to Telkom's bid would ironically be rendered null and void.

Competitive move?

The tribunal is set to start hearings on Telkom's bid next month. The fixed-line operator's initially hostile bid for the IT services company previously fuelled speculation that Neotel would have to make a similar move. However, Neotel MD Ajay Pandey previously quashed such talk, saying there is "enough on Neotel's plate" already.

However, Pandey did not completely scuttle the idea the company may buy an IT services firm in the future. He said the future of telecommunications is in companies that offer both telecoms and IT. "I'm not saying that we'll shy away." He added that the company may look at working closely with an IT firm. "An acquisition is just one way of doing it."

BMI-TechKnowledge senior telecoms analyst Richard Hurst says: "Tata and arivia makes sense." The deal, he says, would give Neotel a "nice springboard into the IT services sector, and Tata certainly has the money".

Other contenders?

Choice Technologies, EOH, GijimaAst, Faritec, Datacentrix, Dimension Data, Datatec, Bytes Technology Holdings, Business Connexion, EOH, Accenture, Unisys, Siemens Business Solutions, EDS and T-Systems have also been identified as possible investors. Hurst also says a T-Systems bid for arivia is quite likely.

The "invitation to submit information to pre-qualify" to buy out the companies' stake in arivia and act as an outsourced IT service provider for Eskom and Transnet, outlines several requirements.

It requires bidders to have at least three years' experience in the local IT services industry and three years' experience in the local IT industry in five of the seven areas Eskom and Transnet may outsource to the successful firm.

Companies wishing to bid must also have minimum revenue of R500 million from local customers a year, or R7.5 billion a year from international clients in the listed expertise areas. In addition, bidders must have a minimum of five clients, with at least one customer contributing R200 million in revenue yearly.

Global player

TCS employs over 74 000 people in 50 countries and provides services such as consulting, system integration and testing solutions, application development, management, business process outsourcing and infrastructure outsourcing.

It counts among its clients seven of the top 10 corporations in the Fortune 500 list of the largest corporations in the US. TCS also has clients in the manufacturing, energy and utility sectors. It says it has been providing services in SA since 1995 and claims to be "one of the first Indian software companies to enter the country".

The local division has two offices, one in Johannesburg and the other in Cape Town. Its clients include the South African Broadcasting Corporation, the University of the Witwatersrand, Absa, MTN and several public sector departments, including the Department of Justice.