Five make arivia shortlist

Five companies have been placed on a shortlist to bid for parastatal IT services outsourcing group arivia.kom, as government moves towards privatising the company by the end of the year.

While shareholders Eskom and Transnet are continuing to remain tight-lipped about the sale, sources close to the process have revealed that Accenture, Business Connexion, Dimension Data, Siemens Business and T-Systems have been invited to respond to a request for proposals.

This morning, Transnet would only confirm that a shortlist had been drawn up. "Yes, it is true [that] we are now at a short-listing stage of the process. The process is on track and proceeding well," says Transnet spokesman John Dludlu.

"Until it is complete, we see no value in commenting on 'who's in, who's out', as the situation will most likely change in the end. A rigorous governance process has been followed since we started this exercise. All the bidders have access to the necessary information they need to make informed decisions as they participate in the process."

It is understood that about 15 companies initially expressed interest in arivia's shareholding, held by Eskom and Transnet, with 58.5% and 41.5%, respectively. The shareholders are disinvesting from arivia as part of a Department of Public Enterprises directive for parastatals to focus on core business. Public enterprises minister Alec Erwin has been driving this initiative for several years now, and last year saw the exit of state defence group Denel from arivia.

A source says a formal request for proposals will be issued by government by the end of this month and it is expected that bidders will have at least two months to finalise their submissions.

"It will give interested parties time to do a business assessment on the company. At the moment, it is difficult to comment on the state of arivia or the scope of government's expectations [in terms of bids]," the source states.

But the process seems to have already attracted some controversy, as it is alleged that IBM, having missed the March deadline for expressions of interest, is now strongly lobbying to make it onto the shortlist.

However, IBM communications executive Mathula Mphande would not confirm or deny this, saying it is global policy for the company not to comment on market speculation.

Meanwhile, much speculation still surrounds the value and health of arivia, which is said to have recently been underperforming on operational and managerial levels. Since the start of the privatisation process, Transnet and Eskom have refused to shed light on arivia's state or on the expected price that government hopes to attain from the sale. A recently-completed due diligence study on arivia, conducted by HSBC on behalf of government, has also not been released.

However, since the start of the sale process, market players have said arivia is virtually "worthless", bar the two large outsourcing contracts, to provide IT services to Eskom and Transnet that will be included in the sale.

Sources say the five-year contracts are worth around R400 million and R200 million a year for Eskom and Transnet, respectively. However, the latter is expected to be boosted by the inclusion of services for the National Ports Authority, which, until now, have been provided in-house. It is expected that, upon privatisation, the combined value of the contracts will be about R900 million a year.

Industry sentiment is that the deal is really about securing two large outsourcing contracts, rather than buying a company. It has been speculated that an eventual buyer will likely strip down arivia and sell off most of the company piece by piece.