CSC in hush-hush BEE deal

Johannesburg, 30 May 2007

US-based IT services company Computer Sciences Corporation (CSC) is selling a third of its local operations in a black economic empowerment (BEE) transaction, sources close to the sale have said.

While all parties involved in the transaction have either denied the deal is taking place, or have refused to comment, well-placed sources have confirmed an official announcement is imminent.

It is understood a consortium led by Lechabile and Digital IQ Corporation is buying 30% equity in the company. One of the conditions of the transaction is that the BEE group has the option to increase its shareholding to 51%.

The estimated value of CSC's local operation is R1 billion, which suggests the transaction is worth about R300 million.

This comes at a time when CSC is fighting to retain its multibillion-rand Old Mutual outsourcing contract, which it signed in 2005 to manage the financial giant's IT infrastructure. The contract, which expires within the next 12 months, is being adjudicated following a closed tender process.

The new contract, said to be worth more than R3 billion over a number of years, is considered to be the largest outsourcing deal in the history of SA's financial sector. However, one of the sources close to the BEE deal says only IBM and T-Systems are on the final shortlist for the Old Mutual contract.

Speculation is also rife that CSC could face a crisis should it lose the Old Mutual contract, as it is largely dependent on this deal for its local revenue. A source close to the BEE transaction has confirmed this, but reasons that the empowered CSC stands a better chance of winning new contracts and growing its revenue base. "We don't believe any company should depend on one large account."

The BEE deal will see the shareholders' agreement finalised before the end of June.

Another source close to the sale confirmed the CSC stake attracted much local interest, with bids received from consortiums led by former Scorpions chief Bulelani Ncquka and the Kunene brothers.

CSC was unable to comment at the time of publication. Lechabile and Digital IQ Corporation refused to confirm or deny the deal this morning.