New contracts sweeten arivia deal

By Martin Czernowalow for arivia.kom
Johannesburg, 16 Nov 2006

Shareholders are driving discussions for two long-term contracts to be embedded within arivia.kom to sweeten the deal for potential buyers.

The sale of embattled IT services outsourcing parastatal arivia.kom is planned for completion by March 2007.

Speculation about the company's viability and financial health has been rife for some time. It flared up again at the beginning of this month when the Department of Public Enterprises said arivia's entire shareholding would be privatised.

The resignation of CEO Zeth Malele, who left his post at the end of October, fuelled rumours of discord at arivia, as news emerged that Eskom and Transnet would sell their respective equity stakes of 58.5% and 41.5% on the open market.

Executive head of Eskom Telecommunications Kiruben Pillay has been appointed as acting CEO to head up the interim management team and facilitate the sale of the IT company.

"Yes, arivia is challenged," he concedes. "Any company that is not meeting its budget and profit requirements does cause discomfort among shareholders. But is it challenged in such a way that it's the end of the world and arivia is about to close down? No.

"Arivia has very responsible shareholders, who have always exited companies in a sensible manner. Their exit from arivia will be done with much pragmatism and they will retain a vested interest in the company as they will continue in their role as customers."

Not seeking investor

Pillay says his appointment is indicative of the stakeholders wishing to be near the process and in a position to exert more influence.

"Shareholders intend to finalise the sale by the end of the financial year, but we're not 100% sure that we can meet those timelines. The intent is to issue invitations for expressions of interest before the end of this year," Pillay says.

He adds that government is seeking to exit the company in a "responsible manner", and would ideally like to see a tier one service provider buy arivia. There is no interest in selling to a "pure investor", he explains, adding that the long-term sustainability of the company needs to be ensured before the parastatals withdraw from the company.

To attract the "right" type of buyer, Pillay says negotiations have started between arivia, Eskom and Transnet to secure five-year outsourcing contracts with the two state utilities. While arivia has been the main provider of IT services for the companies all along (they make up 83% of the group's annual revenue), the proposed contracts would differ from past agreements in terms of duration and scope.

"The new contracts will ensure a totally homogenous approach to both groups [Eskom and Transnet]. These contracts are bigger and more complete - in terms of duration, they are longer than any of the previous one- and two-year deals that were signed in the past. This should give potential buyers a lot more certainty about the future of arivia."

Joint discussions have just started with the two parastatals and the expectation is that these will be completed in about six months, Pillay says.