End of the road for arivia deal?

Speculation surrounding the arivia.kom privatisation process has intensified, with rumours surfacing that the entire deal could be derailed.

Sources reveal only two of the short-listed bidders had submitted final proposals by the closing date last week, adding that neither bid might, in fact, be compliant.

This means the sale of the state-owned IT outsourcer could come to a grinding halt. This week, none of the five short-listed bidders - T-Systems, Business Connexion (BCX), Dimension Data, Siemens and Accenture - were willing to confirm whether they submitted offers by the 13 November deadline.

However, sources close to the process say T-Systems and BCX are the two companies left in the running, with indications that one could pull out before the end of the process.

One of these companies is unhappy about arivia`s shareholders not being willing to commit to contract extensions, says the source.

At the start of the sales process, government included two five-year outsourcing contracts worth around R400 million and R200 million a year for Eskom and Transnet, respectively, as part of the deal. The transport and electricity utilities respectively hold 41.5% and 58.5% of arivia.

"But it seems like Eskom and Transnet want their cake and want to eat it. They`ve refused to talk about contract extensions beyond the initial five-year period, adopting a 'let`s wait and see` attitude," the source explains.

This morning, another well-placed source ventured that neither bid (T-Systems` or BCX`s) is compliant with requirements, and that the sale has effectively stalled.

This, however, could not be confirmed, as government staunchly maintains its no-comment policy about the deal, and has effectively gagged bidders with non-disclosure agreements.

``The process remains on course and, given its dynamic nature, we think it unwise to comment on a stage/phase of this process. However, we remain committed to disclosing its outcome," says Transnet spokesman John Dludlu.

The privatisation forms part of a mandate driven by public enterprise minister Alec Erwin, who has ordered state-owned entities to disinvest from non-core assets and focus on primary business. It is not known whether the Department of Public Enterprises would intervene to save the process to keep Erwin`s plan on track.

Marketworks business advisor Craig Terblanche believes arivia is worth the long-term contracts that have been touted by industry players since the start of the privatisation drive.

Observers have expressed doubt about arivia`s financial health and viability as a company. However, Terblanche points out that good skills are housed within arivia, and potential buyers should not overlook this, especially in view of the fact that skills are not easy to come by - the company employs 1 600 people.

Terblanche also argues that financially arivia is not in as bad a state as rumour has it, but it is badly managed and certain divisions, such as its consulting business, might not be profitable.

While it is expected that potential buyers are looking at the company purely from the point of view of securing the long-term, lucrative contracts, it is understood government has put in place strict labour-related conditions as part of the sale. It is likely that, for some time at least, the buyer would not be allowed to retrench staff or sell off parts of arivia - this is also said to have detracted from the company`s attractiveness.