EOH rebounds after departures

JOHANNESBURG – EOH Holdings has suspended some of its employees that were involved in deals being reviewed by its lawyers after an anonymous complaint prompted Microsoft to cancel a contract with the South African IT company.

“We have either suspended or received resignations from involved employees, resulting in none of the employees currently implicated remaining in the business,” EOH Chief Executive Officer Stephen van Coller said in a letter to staff. 

EOH’s SHARE price continued to take a beating on the JSE, declining by more than 11percent last week.

The talks with multinational technology giant Microsoft regarding the decision to terminate its Channel Partner Agreement with EOH Mthombo, a subsidiary of EOH, failed to yield positive results. EOH chief executive Stephen van Coller admitted early last week that the matter with Microsoft was now sub judice.

In fact, Van Coller is in a race against the clock to restructure the sprawling South African IT business before shareholders and lenders run out of patience.

Van Coller, a former executive at Barclays Africa Group and MTN Group, was brought in to turn around the troubled business and improve its corporate reputation after allegations of corruption linked to government contracts. He plans to break EOH into different parts to release greater value from a portfolio of more than 270 companies while appointing PricewaterhouseCoopers as an internal auditor and launching a whistle-blower app.

EOH plans to separate the public-sector services business from the private-sector arm and focus it on shorter-term contracts. The software side could be split into about six to eight separate companies, Van Coller said, adding that disposals or listings will then be considered.

“Should any lender become impatient during the process, the sale of a business could be fast-tracked,” Van Coller said. The share price reached a low of R12.72 a share on Wednesday after opening at R20.05 last Monday. However, it bounced back after the group announced that long-serving executives would step down from the board to comply with King IV corporate governance.

But the group’s share price has tanked by more than 72 percent in the last 12 months, declining from R63.75 to the current levels of R17.

Asher Bohbot, the current chairperson and founder of EOH, will step down from the board at the end of the month. Bohbot was also chief executive for the group for 19 years.

The other departing board members include Rob Sporen, Professor Tshilidzi Marwala and Tebogo Maenetja.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the resignation of Bohbot from the board has mixed implications for EOH. “His experience as the founder of the company as well as his business relationships in the private sector will be missed. However, the market has been rightly concerned about all the allegations levelled against the company and the consequent impact to operational performance, such that introducing more independent people to the board and management became necessary,” Takaendesa said.

He added that the share price pressure had intensified recently as further allegations had introduced higher levels of uncertainty that maybe more issues are still to come out.

“As we have seen over the past year, the longer these uncertainties remain unresolved they translate into weaker financial performance in later periods and make it difficult for the company to enter or renew long term customer contracts at normal profitability levels,” Takaendesa said.

Lebashe Financial Services, a shareholder that last year injected R1billion into EOH for an equity stake, is willing to support Van Coller’s strategy, Lebashe chief investment officer Warren Wheatley said in an emailed response to questions.

EOH shares closed 4.47percent higher at R17.76 on the JSE on Friday.

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