Putting a price tag on arivia

By Martin Czernowalow for arivia.kom
Johannesburg, 17 Nov 2006

In the next few months, arivia.kom's interim management team will conduct value assessments of the company, ahead of its sale to the private sector.

Acting CEO Kiruben Pillay says it is anticipated the sale of equity stakes held by Eskom and Transnet would be concluded by March. The announcement, at the end of last month, that the electricity and transport utilities would disinvest from the IT company, stirred market speculation regarding the potential value of the company.

Earlier this year, state-owned defence group Denel shed its 22.98% shareholding in arivia, selling it for R130 million to Eskom and Transnet. This prompted market observers to comment the entire company may be worth just under R600 million, while some analysts have suggested this may be a bargain.

However, Pillay says the exact value of the group cannot be determined at this stage, as management is in talks with shareholders to embed two five-year outsourcing contracts with Transnet and Eskom before the group is privatised.

These multimillion-rand contracts, the largest in terms of scope, value and duration in arivia's history, will serve to ensure the company's long-term sustainability and make it more attractive to potential buyers, Pillay notes.

Up in the air

The value of the company will be based on calculations that include projected revenue from the contracts, he notes.

"At this stage the numbers are up in the air. The five-year contracts will put a new spin on the value of the group. We will be looking at two sides of arivia to determine the value.

"Firstly, we will look backward to assess past revenue streams and extrapolate potential revenue flows going forward; this will give us one valuation. Secondly, we will include the revenue streams expected from the new contracts and extrapolate future revenue flow from there, giving us a second valuation."

Pillay says the two estimates will then be brought together and a potential value determined somewhere between the two.

The sale of arivia is set for completion by March, but Pillay says it is uncertain whether this timeline can be met. He explains shareholders will look for a buyer that is a first tier service provider and well established in the IT sector.

Critical role

Public enterprises minister Alec Erwin recently said government would strengthen arivia's position and "give it more critical mass, because we believe that it is playing a critical role in the ICT sector". He added that a company of this type would play a key role in SA and Africa in the future.

Earlier this year, Erwin discussed government's vision to empower arivia, saying several ways of achieving a black economic empowerment (BEE) shareholding were being mulled. It is understood that a potential buyer will be required to have suitable BEE status.

Analysts are divided about which company would be a good fit for arivia, but agree that a potential buyer would seek to have access to Eskom, Transnet and Denel annuity revenue - which is what the two new contracts will ensure.

While some analysts have said likely buyers could include Dimension Data and Telkom-BCX, as well as some multinationals, others have been adamant listed companies would shy away from the group and its parastatal culture. Growing market speculation also had it that SA's second national operator, Neotel, will likely put in a bid for arivia.

The completion of the sale will advance government's privatisation aims and also fulfil the Department of Public Enterprises' mandate for state-owned entities to disinvest from non-core assets.