Kaz sell-off rumours grow

Kaz sell-off rumours grow

Industry speculation mounts that Kaz is up for sale

Industry speculation continues to mount that Telstra is planning to sell-off its IT integration subsidiary, Kaz. It coincides with a decline in the telco's first-half year IT services revenues.

Several industry sources told ARN the 'for sale' sign has been hanging on the front at Kaz for months. According to reports in The Australian IT, parties interested in purchasing the integration business include Fujitsu, HP and IBM.

One ARN source close to Kaz claimed Fujitsu had already made a $110 million offer, a deal denied by Fujitsu A/NZ managing director, Rod Vawdry. He said the company did not comment on media speculation, but denied Fujitsu had lodged a bid.

"There's always a lot of speculation and opportunity for consolidation in our industry. Being an IT services company, you could draw conclusions that any other IT organisation may or may not be of interest to us depending on whether they were up for sale or not," he said. In the six months to December 31, Telstra reported IT services revenues fell from $242 million to $213 million. Kaz's revenues declined due to delays in product sales, it added. The drop in IT services saw the telco's business services and application division grow by just 0.4 per cent to $501 million.

Telstra acquired Kaz for $333 million in 2004. Since then, it has sold off several components of the business, including Australian Administrative Services (AAS) in December 2006 for $231 million, as well as Kaz's Business Services, Software Services and Enhanced Processing Technology shares for $2 million last July.

Other parts of the business to go include Kaz's business process outsourcing division and ISV arm, Fundi Software, in May 2006. A source close to Kaz estimated these sales brought in as much as $30 million.

Hundreds of Kaz staff have lost their jobs along the way, including 200 employees terminated after a strategic review last May. Kaz founder and now managing director of PK Business Advantage, Peter Kazacos, is tipping a quick Kaz sell-off and predicted Telstra would offload the business within this financial year.

"I don't think Telstra will sell Kaz for less than $100 million, but I'd say that price is in the ball park," he said. "It's a psychological thing." Kazacos said a potential buyout by Fujitsu could be a good option because the integrator maintained a good reputation for customer service and innovation. On the other hand, HP and IBM could have trouble integrating Kaz's hardware procurement business, he said.

Kazacos also pointed to Data#3 and Datacom as potential buyers.

"The gold in Kaz is its Canberra [government] business. You can't build that kind of relationship overnight," he said. "Kaz, when it bought Aspect Computing, acquired $200 million worth of Canberra business and it has flourished. Other areas of Kaz's business have stagnated.

"If an organisation didn't have a strong presence in Canberra, picking up Kaz could be very valuable."

On the other hand, Kazacos suggested there could be issues with some of Kaz's more sensitive government contracts if a multinational player acquired it.

"Kaz does a lot of defence business in highly secure and sensitive areas. Whether defence wants an overseas-owned company in there is a question," he said.

While agreeing Kaz was not core to Telstra's market strategy, Kazacos was concerned that selling to an international integrator would see another Australian-owned company exiting the market. "It would mean yet another Australian company is no longer there - as part of Telstra it's at least still Australia-owned," he said. "An acquisition could take another large IT integrator out of the equation. How many are we going to have left?"

Telstra had not responded to requests for comment at time of press.

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