Business as usual post-Telstra buyout, claims KAZ

KAZ Group has claimed that little, if any, rationalisation of its staffing or operations can be expected from its $333 million buyout by Telstra.

Peter Kazacos, CEO at KAZ Group, said all 2,700 staff could expect to keep their jobs as the deal was expected to augment both companies. There was little, if any, duplication across their services or other divisions, he said.

'It's business as usual for us. We're not re-organising heavily within the KAZ Group,' Kazacos said. 'We're not looking to fuse the two cultures but continue to expand the KAZ culture and company focus.'

Kazacos would stay on, the companies said, as the outsourcer and IT services provider would continue to run on a stand-alone basis.

He said the companies had 'no intention' of housing any of the staff together. KAZ would maintain its current business locations and the deal was expected to eventually add staff.

Mike Foster, MD of service solutions at Telstra Business and Government, said a couple of services areas might have a small amount of duplication. More importantly, Telstra's services had not previously been able to target potential customers with 1000 to 5000-desktops - an area of KAZ strength.

'Ours has been more about the 20,000-plus [customers]. So I think there's areas that are complementary. But because that's been in the desktop, there are efficiencies [that could be improved] as well,' Foster said.

A path to those efficiencies would 'take a while' to work out, Foster added.

Reports have suggested that the buy will give Telstra a crack at beefing up its services revenue, which has languished since IBM bought back its IBM Global Services Australia (GSA) joint venture and competition from other players such as Optus increased.

A 2000 acquisition, Advantra, was rolled into Telstra's business and government division under the Telstra Enterprise Services moniker.

However, analysts and industry commentators have queried the purchase, arguing that Telstra has a history of paying too much for its acquisitions. KAZ made a $1.6 million loss in the first half to December 2003. It reported revenues of $356 million in the 2002-03 fiscal year.

Telstra's Foster said he thought the telco's $333 million offer for KAZ was fair. 'It's about 21 percent on top of the share price today ... We think it's fair for both parties,' he said.

Foster said KAZ's areas of specialisation - such as services around superannuation -- were expected to grow strongly in coming years as were managed IT services in general.

Kazacos confirmed that the outsourcer expected to reap $400 million in revenue this financial year, based on growth 'in excess of 10 percent' that was expected next financial year.

'One of the things we're looking at [here] is the ability to provide communications infrastructure to the employers groups and a small number of members, giving them the ability to send and receive a lot of transactions electronically, through being part of the Telstra brand,' Kazacos said.

Telstra announced plans to acquire 100 percent of KAZ this morning, Wednesday 7 April.

Both companies have endorsed the plan, which involves Telstra paying 40 cents a share in cash via a scheme of arrangement.

Telstra CEO Ziggy Switkowski said the acquisition improved Telstra's position in the managed and ICT services markets.

'For Telstra, the transaction delivers increased capability in the ICT services market, a key driver of future growth for Telstra's business and government division, by enabling us to serve an increasing number of customers looking to telecommunications companies as partners who deliver and manage their complex IT and business process outsourcing requirements,' Switkowski said in a statement.

The companies' combined managed services activities could have initial revenues close to $1 billion per year.

The offer price represents a 21 percent premium to the volume weighted average share price of 33.2 cents since the announcement of KAZ's half-year results 24 February.

Lyndsey Cattermole and Peter Draney, KAZ directors together owning 12 percent of the shares, have agreed to grant Telstra a call option over their respective shareholdings.

The acquisition is subject to shareholder and court approval. Acquisition documents will be sent to shareholders in late May and shareholders are expected to vote on the sale late June for formalisation early July.