Fujitsu acquires KAZ from Telstra for $200 million

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Fujitsu acquires KAZ from Telstra for $200 million

IT services powerhouse Fujitsu will relieve Telstra of its KAZ IT services business for $200 million.

The acquisition positions Fujitsu as the third biggest IT company in Australia by revenue, behind only IBM and HP/EDS. 

The Tokyo-based company will now employ some 5,000 staff in Australia.

"Fujitsu enjoys a number three position globally, but until now, not in this market," Fujitsu Australia's CEO Rod Vawdrey told iTnews.

Telstra paid $333 million for KAZ Computer Services in April 2004, but has struggled to earn a return from the business. 

Telstra's IT services revenue has been in freefall for several consecutive years - dropping a further twenty per cent (from $213m to $170m) in the half year to December 21, 2008.

"The decrease in business services and applications revenue was predominantly as a result of the decline of project related work due to the challenging economic environment,"  Telstra said it its annual report.

"IT services revenue has declined due to lower desktop management and associated IT project work."

Telstra's David Thodey has said for well over 12 months that the telco "no longer considered ownership of an IT services business to be a core part of Telstra's strategy."

Telstra has sold off several KAZ business units already - its superannuation bureau business (Australian Administration Services) to Link Market Services for $166m in September 2006, its business process outsourcing division to Fuji Xerox Global Services in August 2007 for an undisclosed sum, and its Business Services, Software Solutions and Enhanced Processing Technology businesses for the combined price of $2m in the last six months.  

Vawdrey said Fujitsu will take on all that remains of the KAZ business - hiring all remaining KAZ staff, regardless of their division or geography.

Some staff will continue to work from Telstra premises under the arrangement, he said, as "in the services business, your staff tend to be out with clients - where they call home tends not to be so important."

Vawdrey said that like Fujitsu, KAZ is strong in applications, systems integration, infrastructure and consulting.

But he admits KAZ is "much stronger in Canberra", giving Fujitsu a far better chance of winning Federal Government business.

"It's a true scale play," he said.

There has been speculation for some 12 months that Fujitsu was interested in taking the KAZ business off Telstra's hands, with some press reports suggesting Fujitsu had already made a bid for $110 million that Telstra rejected.

Vawdrey denies these figures were ever on the table.

"We have been working on this transaction for some time," he said.

"There was speculation about numbers, but that was pure speculation. We never made an offer of those numbers."

"We believe the acquisition to be well valued," he said.

"The KAZ business has been trading very well. If you use Telstra's [IT services revenue] figures as your only guide, you don't understand how things have changed since Telstra bought the business.

"They have sold off many pieces of the business, so of course revenue numbers change. You can't compare apples to oranges. "

"In some areas, IT services have expanded. We're buying a business that is in very good shape."

Vawdrey nonetheless agrees Fujitsu can do better things with KAZ than Telstra.

"Being a global company, we can deliver training and development for staff, opportunities to work overseas, and the globally proven, robust tools and processes to compliment what they are doing locally."

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