Old Mutual deal imminent

Johannesburg, 15 Jan 2008

One of the biggest IT outsourcing contracts within the local financial sector is on track to be signed at the end of January or the beginning of February.

Project Rosa, a five-year R1.5 billion to R2 billion contract for the supply and maintenance of the complete IT infrastructure of Old Mutual and Mutual and Federal, has been awarded to T-Systems, according to sources close to the deal. Official confirmation has not yet been given by any of the parties.

It is understood the contract will also include identifying and exploiting IT infrastructure and service delivery synergy across the two companies, which form part of the Old Mutual Group.

"Part of the project has centred on evaluating and selecting an IT infrastructure supplier, as the current OMSA [Old Mutual SA] infrastructure outsourcing agreement with CSC [Computer Sciences Corporation] is approaching its end," the Old Mutual Group said earlier.

It confirmed this week that it is on track to formalise the deal either at the end of this month or in early February, following a "period of contract negotiation" with the preferred supplier, started in October last year.

While the Old Mutual Group has declined to name the preferred supplier until now, market speculation is that T-Systems pipped incumbent CSC and rival IBM to secure the contract.

A smaller pie

In July, the Old Mutual Group downscaled the contract, which would initially have seen Nedbank included in the deal. However, a decision was taken for Nedbank to provide its own IT infrastructure and maintenance in-house, and for Old Mutual not to pursue a group-wide solution.

This shaved off about 40% to 50% of the contract value, from an original value of more than R3 billion over the contract period. It also pushed the finalisation of the deal back by about three months.

Market observers have stated that the loss of the Old Mutual Group contract could well signify the death knell for CSC's local operations, which sourced up to 90% of its annual revenue from the contract.

In May last year, the company sold a 30% equity stake to an empowerment consortium led by Lechabile and Digital IQ Corporation. Market speculators saw the low-key transaction as a means for CSC to beef up its chances of retaining the Old Mutual deal, as well as a way to diversify its revenue base.

Later that same month, T-Systems also concluded a black economic empowerment deal, taking its empowerment equity shareholding to 30%. The BEE consortium involved consists of T-Systems' long-standing shareholder African Renaissance Holdings and Awari Investment Holding, an entity that is 100%-owned by black women.

In addition to all but securing the Project Rosa deal, T-Systems is also in the running for buying state-owned arivia.kom, another much-anticipated deal within the outsourcing space.