Arivia deal shrinks

Government is on track to complete the privatisation of parastatal IT services outsourcer arivia.kom before the end of the current financial year, in March 2008. However, the deal might be less lucrative than expected.

The five companies short-listed to bid for the company - Accenture, Business Connexion, Dimension Data, Siemens Business and T-Systems - met with arivia shareholders on Friday and were issued with formal requests for proposals. Final bid submissions have to be made by 26 October.

Sources close to the sale say the structure of the deal has changed slightly. Transnet and Eskom, which respectively hold 41.5% and 58.5% of arivia, earlier announced two outsourcing contracts would form part of the deal.

The five-year contracts are worth around R400 million and R200 million a year for Eskom and Transnet, respectively. It was initially said the latter was possibly to be boosted by the inclusion of services for the National Ports Authority (NPA), which would have added a further R300 million a year.

However, the component will not form part of the deal, but could constitute "future business", sources close to the sale say. It is understood that Transnet has decided not to include the NPA part of the contract, meaning these services will continue to be provided in-house.

Neither Transnet, nor Eskom, would comment this morning at the time of publication, and the shareholders have been tight-lipped about the arivia sale since it was launched.

Much speculation also surrounded arivia's financial and operational health, and industry players have described arivia as virtually "worthless", bar the two outsourcing contracts. This led to rumours that potential bidders would be after the government contracts, rather than arivia as a company.

However, bidders were told at last week's briefing that the successful buyer would have to provide separate proposals for arivia and the outsourcing contracts, but that these would be sold as one package. In the proposal for the outsourcing deals, a potential buyer would have to provide proof that it has the technical capabilities to fulfil the contracts.

Meanwhile, sources say government is looking to sell Face Technologies and Computer Foundation - both subsidiaries of arivia - separately. This means separate bids have to be filed for these.

The sources also say that one of the challenges surrounding the deal will be to get clarity around the actual value of arivia.

"There is very little clarity at the moment. We know that the Department of Water Affairs is arivia's third-biggest client, but that contract is running out next year. It is unknown at this stage whether this deal can be renewed."

A final shortlist of bidders will be completed by 19 December and government's due diligence study on the company will be concluded by the end of February.