Arivia sold to T-Systems
State-owned IT services provider arivia.kom has been bought by ICT outsourcer T-Systems, bringing to conclusion a protracted deal that took about four years to complete, ITWeb can exclusively report.
While the transaction has not been officially announced, the Competition Commission has confirmed T-Systems filed papers for the approval of the merger on 1 September. Competition authority approval seems to be the only outstanding condition that has to be met before the deal is official.
This morning, a Competition Commission spokesperson told ITWeb: ”I can confirm that we received a merger filing for the intermediate merger between T-Systems SA and Ariviakom, trading as arivia.kom...”
Details of the deal are currently sketchy, as government has maintained a media blackout throughout the sales process, which was first announced in October 2006, and has also issued a gag order to potential buyers.
The Competition Commission is also unable to provide any substantial details at this stage, saying that, according to Rule 14(1)(c)(ii) of the “Rules for the Conduct of Proceedings in the Competition Commission”, the documentation received from the merging parties is restricted until the commission has made a decision in the case.
However, the value of the deal has been the subject of much speculation since then public enterprises minister Alec Erwin announced arivia would be sold as part of government's push to dispose of non-core assets.
Arivia's shareholders are power and transport utilities Eskom Enterprises and Transnet, which own 58.5% and 41.5% of the company, respectively. State defence group Denel held a 22.98% stake in the IT service provider, but disposed of its share in April 2006. The loss-making state defence group reportedly needed cash at the time, so its stake was absorbed by Eskom and Transnet.
T-Systems this morning would not comment on its Competition Commission submission, nor would it confirm or deny it has bagged the deal. The local subsidiary of global telecoms giant Deutsche Telekom pipped four other companies to the post, after initial interest was shown by Dimension Data, IBM, Siemens and Accenture.
While the value of the deal is not known, industry speculation has been rife that arivia is not a viable business without its two large outsourcing contracts - for the provision of IT services to Eskom and Transnet. The five-year outsourcing agreements are worth around R400 million and R200 million a year, respectively, and are considered key to the success of the deal.
In January, T-Systems received the nod from government for the purchase of arivia. The company qualified for the next phase of the transaction, which was intended to explore terms and conditions, as well as commercial details of the deal.
It is understood that due diligence studies, as well as negotiations regarding the final shape of the deal and outsourcing contracts, is what held up the transaction. It is also not known if any agreement was reached regarding the future of arivia's 1 200 permanent employees.
The company claims to be one of the four largest IT professional services providers in SA, with an estimated 7.8% share of the local market. It delivered revenue of R1.47 billion in the 2006/7 financial year.
Arivia was established, in January 2001, through the consolidation of the IT service units of Eskom (Eskom ITS), Transnet (Datavia) and Denel (Ariel Technologies).
Transnet did not return calls seeking comment.
T-Systems, led by CEO Mardia van der Walt-Korsten, has landed several significant outsourcing deals in the local market since the beginning of last year. In February 2008, it secured a five-year, R1.8 billion contract for the supply and maintenance of a significant portion of the ICT infrastructure for financial services company Old Mutual SA and short-term insurer Mutual and Federal.
This was followed by a R50 million deal, in June last year, with consulting and actuarial firm Negotiated Benefits Consultants (NBC), to manage the communications between all of NBC's locations in SA, for five years.
According to the Competition Commission's revised thresholds for mergers - since April this year - a merger had to be notified as intermediate if the value of the proposed deal equals or exceeds R560 million. This is worked out by either combining the annual turnover of both firms, or their assets. A merger had to be notified as a large merger if the combined annual turnover or assets of both the acquiring and target firms are valued at or above R6.6 billion.
As this deal is notified as an intermediate merger, T-Systems will not require the approval of the Competition Tribunal (over and above that of the Competition Commission). The tribunal only has to give approval for mergers notified as large.