Telstra on track with Kaz bid

Telstra's $333 million acquisition of local IT outsourcing provider Kaz is on track for completion in July with customers optimistic there will be little disruption.

Kaz directors are unanimously voting in favour of the deal based on the view that the proposed transaction of $0.40 per Kaz share represents a good premium considering the company hasn't been trading near those levels since April 2002.

Gartner views the acquisition as a positive one if Telstra can leverage Kaz's IT services business which is part of a growing industry sector but analyst Rolf Jester said there are questions that still need to be answered.

“Telstra is acquiring companies on all sides of the spectrum. It is very unclear what Telstra’s overall strategy is. There seems to be no clear vision being communicated by Telstra which needs to be rectified. The market needs to see the sense of where the IT investment fits in the overall scheme of business," he said. The acquisition will makeTelstra the fifth largest IT services provider in Australia but noted it may not be a natural fit.

“With Telstra being 50.1 percent government owned, there will always be an ambiguity as to whether its role is for commercial business or for an instrument of policy. I don’t see this being resolved," he said.

Although Jester takes a sinister view of Telstra’s claim that Kaz offers synergy, he does view the proposed acquisition optimistically. “One of the reasons given for the acquisition is ‘synergy’. I don’t buy that for one minute," he said.

"An acquisition will give them no greater leverage than a commercial alliance would have provided. This is purely a decision for growth by Telstra, and gives Kaz access to more capital.

"If the acquisition is executed well, it will also give Kaz exposure to a wider customer base. These are good things.”

Customers expect little disruption

One client who is mindful of the possible impact of the proposed acquisition is ING Insurance, which has a five-year contract with Kaz to provide desktop and server management at the financial services firm.

ING IT services manager Dilys Geddes said Kaz has advised the insurer there will be no disruption to services.

"We aren't concerned, but we want to know that our account will continue to be managed in the same style as Kaz," he said.

"It is always difficult during acquisitions as often culture and management style differences are imposed. Our present partnership with Kaz is working well and we are hoping there will be no disruptions, but it's early days yet."

Although Geddes said ING was initially notified of the proposed acquisition by Kaz and continues to get formal updates, George Weston Foods has not been afforded such luxury. The company's technology services manager Mohamed Kader learnt of the acquisition by reading the press and getting updates from the ASX. George Weston has a three-year contract with Kaz and does not plan to change its relationship.

"We selected Kaz due to costs, responsiveness and ‘can do’ attitude," he said.

"We understand that Kaz will work independently within Telstra. We cannot tell whether Telstra overheads will translate to higher costs to us in the future, or if Telstra’s structure and processes will affect the manner in which we operate today. We need to wait and see.”

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