Debt-ridden EOH raises R240m in latest assets sale
JSE-listed technology services company EOH has disposed of its 30% stake in Construction Computer Software (CCS) for R144 million, and the entirety of its ownership of LSD Information Technology for R96 million.
In a statement, the debt-ridden company says the disposals are in line with its strategic intent to reduce debt and improve liquidity.
Megan Pydigadu, EOH group financial director, recently told ITWeb the company has R2.9 billion worth of debt and its aim is to deleverage this by R1.5 billion in the next 18 months.
She said the company is looking to reduce debt mainly via the sale of non-core assets.
Now, EOH says as part of its strategic intent of reorganising the group and creating a fit-for-purpose capital structure that is adequately supported by its cashflows, the group is pleased to announce the disposal of its stakes in CCS and LSD.
In July 2019, EOH Mthombo sold 70% of its shares in CCS to RIB Limited. The remaining 30% shareholding in CCS was retained as EOH planned to participate in the growth of CCS through RIB’s broader distribution and development network, says the IT services firm.
EOH and CCS also entered into a reciprocal put and call option in terms of a shareholders’ agreement for the disposal of the remaining 30% of the issued ordinary share capital of CCS.
Additionally, 10% of the purchase price, being R44 439 000, was held in escrow till 31 July 2021 as security for warranties given and adjusted downwards for any claims made against the seller in accordance with the terms of the sales and purchase agreement, says the company, adding that no claims have been made against this escrow to date.
“EOH is pleased to announce that RIB has requested an acceleration of the call option to purchase the remaining 30% of the issued ordinary share capital of CCS for a consideration of R143 million effective no later than 31 May 2020,” the company notes.
“The acceleration of the call option in respect of the remaining 30% will add to EOH’s deleveraging programme, while giving RIB complete control over the business and allow greater flexibility and autonomy as it navigates the current uncertainty in the global economy.”
Additionally, says EOH, RIB has agreed to bring the warranty period for the escrow amount forward to 30 September 2020 given that there have been no claims to date.
The parties will work together to finalise the release of this retention by the due date. The amount held in escrow totalled R46 198 050.50 at 7 April 2020 and will continue to attract interest.
EOH, through its wholly-owned subsidiary EOH Mthombo, acquired LSD in December 2017. LSD specialises in open source technologies and has supported the digital transformation journey of EOH customers, says the company.
It notes that on 17 April 2020, EOH Mthombo entered into a settlement agreement with the initial sellers in terms of which EOH Mthombo has agreed to transfer all of its shares in LSD to the initial sellers as full and final settlement of EOH’s outstanding obligations, estimated at R96 million.
The settlement agreement amicably cancels the initial acquisition agreement and relieves EOH of its obligations.
EOH and LSD are committed to ensuring all customers of EOH and LSD continue to receive the various services offered by LSD, and a service-level agreement between the two parties is being finalised.
EOH Group CEO Stephen van Coller says of the transactions: “The LSD team have, over the past three years, delivered fantastic value to our clients and I’m pleased to say they have confirmed their commitment to ensuring services provided to EOH’s customers are not disrupted or negatively affected.
“In regard to the CCS transaction, both parties believe that given the significant growing uncertainty around global economic conditions due to COVID-19, the transaction is the most prudent approach in the circumstances. I’d like to express my gratitude to both LSD and CCS and wish them the very best in their future endeavours.”