Getronics debt stuggles worry customers

Getronics, one of Europe's largest IT services companies, is worrying existing customers and losing out on new deals as it tries to restructure its finances.

Customers have been asking questions about Getronics' continuity since November of last year, when the Amsterdam company announced a second round of job cuts to further reduce its cost base. Troubles for Getronics worsened last week when it failed to persuade bondholders to back a lifesaving debt swap.

The swap, announced January 10, would reduce the company's nearly $US487 million in net debt to between $US108 million and $US130 million. However, only 24.5 per cent of bonds were tendered by last week's deadline. Getronics will present a new offer on or before February 5, the company said.

Getronics Chairman and Chief Executive Officer, Peter van Voorst, has said that the changing of bonds into shares "will remove market uncertainties, and take away any doubt that may exist about the financial solidity" of Getronics. The company amassed much of its debt when it bought US rival Wang Global in 1999.

Company spokesman, Herbert van Zijl, said that no major customers had abandoned Getronics. However, it does cost Getronics management "a lot of time to explain to customers what the financial state of the company is" and Getronics was being passed over by potential new customers.

"This is an issue we need to get off the table so we can again fully join the race [for customers]," Van Zijl said.

Meanwhile, Getronics customers should prepare contingency plans in case Getronics can't overcome its financial troubles, senior analyst at Forrester Research, Andrew Parker, said.

"The CIOs [chief information officers] of organisations that buy services from Getronics should at least keep their eyes open and be aware of any disaster recovery steps they may have to take in case Getronics collapses," he said.

Relative to some of its competitors, such as IBM's Global Services division and Accenture, Getronics looked "in much more shaky financial position," Parker said.

"I am convinced that organisations that are looking to create new relationships with IT services companies will push Getronics down on their lists," he said.

Meanwhile, Getronics' partners seem to be preparing for the worst. Dell Computer, an important partner for Getronics' desktop support and outsourcing business, signed a deal with T-Systems International, the Frankfurt, Germany-based services offshoot of Deutsche Telekom, late last year.

"One might see that as kind of a hedge in the event Getronics does go down," Parker said.

Once Getronics cleared this financial hurdle, which Parker expected the company to do, many more hurdles would have to be jumped.

"It seems to be that the management of Getronics has been taking the steps necessary to stabilise the financial position," Parker said. "The current crisis is one that they will weather, but there are some longer-term issues. It is a very competitive market at the moment."