Troubled IT group EOH sold control of its German unit, in a R444 million deal that kicks off the sale of non-core assets to pay down debt and revive its fortunes as it works to strengthen corporate governance.
EOH has changed executive leadership, suspended employees and launched an internal investigation into possible corruption in the company’s bidding for several government tenders.
The allegations have sent its shares plunging, wiping out more than R1.7 billion, or 37%, of shareholder equity so far this year, the bulk of which was shortly after Microsoft cancelled a contract with the company.
EOH said on Tuesday it has sold 70% of its subsidiary Construction Computer Software (CCS), which software platforms in the construction industry, for R444.4m to a Germany's RIB Software. It would the remaining 30% as strategic equity.
It said it would use the money to pay down its almost R3bn debt.
Ruhan du Plessis, technology analyst at Avior Capital, said the sale highlights management executing on its strategy and delivering on promises made to the market earlier this year.
The company had previously said it was planning asset sales for non-core assets in a bid to raise R1bn as part of a restructuring and to pay off its debt.
However, Irnest Kaplan of Kaplan Equity Analysts, said the CCS sale was strategic and did not fit the description of non-core, peripheral asset as it boasted good clients and was profitable.
"It looks like a good deal for all parties," Kaplan said.
For RIB, it gives them more users and the ability to strengthen its offering and diversify into new markets. For EOH, it gets to pay off some debt while retaining the potential to grow the value of its remaining 30% stake.
EOH's debt amounted to R2.78bn as of 31 January 2019 with an equity ratio of 61%. The sale proceeds will reduce the net debt by 16%.
"Assets for disposal could include EOH Mthombo which, incidentally, was the company where an employee was implicated in corruption, and which are involved in public sector work, dependence on which EOH would like to reduce," Momentum Securities' head of research Stephen Meintjes said
The company said it had also entered into a put-and-call-option agreement to sell the remaining 30% of CCS to RIB in December 2022.
The CCS group of companies provides cost and enterprise software solutions for the construction and engineering industries. The group’s flagship products are construction management platform Candy and enterprise management system BuildSmart.
RIB provides software to the construction and property industries.
“It is a crucial step forward for EOH’s intellectual property division and RIB is the right partner to unlock CCS’s full potential, enabling both future growth and internationalisation," EOH said.
EOH is under a new management team that is led by CEO Stephen van Coller and chair Xolani Mkhwanazi.
Van Coller is leading the probe into EOH’s past contracts with the state since he took the helm in September 2018. One public-sector contract is said to be the reason Microsoft cut ties with EOH earlier in 2019.
EOH’s shares ended the day at around R20, a dramatic turnaround of fortunes for the stock that fetched nearly R180 in 2015.
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