Johannesburg - Datatec, the technology company, yesterday staved off another punishing day on the markets when it said it would sell its Internet company, UUNet South Africa, back to US telecommunications company, WorldCom, for an estimated R850 million.
When the company released interim results last week analysts said the debt levels were worryingly high, but Datatec said yesterday the sale would eliminate its net borrowings on the books.
The market's reaction appeared favourable. Since interims were announced the share had lost 37,5 percent in value. Yesterday it gained 6,25 percent, closing R2,50 firmer at R42,50.
Craig Tate, an information technology analyst with ING Barings, told Bloomberg the deal was good for Datatec since it would increase focus, improve cash flow and improve earnings.
Jens Montanana, the executive chairman of Datatec, said UUNet accounted for up to 40 percent of all Internet traffic in South Africa with a combined corporate and dial-up subscriber base of more than 600 000 users.
He said last week's announcement about Datatec's intention to list UUNet had spurred on WorldCom to make a move after a year of inconclusive talks.
The due diligence was complete and Montanana said WorldCom was paying quite a price because with deregulation in the local telecommunications industry, bandwidth costs would drop and Internet usage should boom.
Datatec had made a total investment of about R170 million in UUNet.
Montanana said Datatec had realised great returns with this sale.
The cash coming in, apart from eliminating debt, would also be used for a war chest and to fund earn out payments to acquired companies.
Datatec said in the near term it would try to unlock further value for shareholders either by disposing of some "gems" in the business or by other means.
New appointments had been made across the group with the most significant change being the demotion of Rikke Helms who had been the chief executive of the Logical division in the UK.
Montanana said with the merging of Advisory Services and Logical in the UK, there had been two chief executives. Helms, however, had been retained as a consultant to Datatec while Mason and Logical worked up to their London listings in the second half of next year.