telstra eyes $400m kaz makeover

TELSTRA is poised to make a $400 million takeover bid for listed technology services company Kaz Group in a drive to build its own services business with $2 billion in revenue.

The move is intended to reinvigorate the telco's managed information technology services unit, which has floundered since Telstra bought out its joint venture partners in Advantra four years ago.

Telstra's business and government division, in which the Kaz operation would be housed, suffered a 5 per cent fall in revenues to $4.5 billion with Telstra forced to slash prices to fend off competitors such as Optus, Uecomm and Telecom NZ. Telstra's revenue from managed services was $233 million for the six months to December, flat year on year.

Group managing director David Thodey, a 20-year veteran of IT giant IBM, is now under pressure to restore his division's fortunes,

A Telstra spokesman declined to comment. However, it is understood a proposal went to the board recently

A spokesman for Kaz said the company's executives "are not prepared to comment on speculation".

Shares in Kaz are sitting near their highest level this year, closing at 35.5c on Friday amid optimism that the group will deliver more than $400 million in revenues for 2004 after a poor performance in 2003.

Kaz recorded a loss of $1.6 million for the first half to December on a 45 per cent fall in operating profit to $5.5 million. In a year of restructuring, the result was hit by $5 million in one-off costs. However, EBITDA is forecast to rise this year to around $35 million thanks to restructuring and a continuing recovery in the IT sector.

Kaz is one of the few local IT services companies of any meaningful size, competing against big offshore players such as IBM and EDS and other international groups such as Dimension Data.

Telstra's entry into services came via its two joint ventures with IBM and Lend Lease in 1997, named IBM Global Services Australia (GSA) and Advantra. IBM GSA wound up last August when IBM bought back the minority shareholdings. Advantra was a managed IT services group running IT support and was the biggest desktop support company in the country, controlling the Telstra account and its 50,000 desktops.

Telstra bought Advantra in early 2000 and the following year management rebranded it Telstra Enterprise Services. Since then, the business has been rolled into Telstra's business and government division and forms the core of Telstra's services strategy.

The proposed expansion in IT services accompanies Telstra's strategy to increase its presence in other areas as chief executive Ziggy Switkowski seeks to deliver on his promise of returning the company to 4-5 per cent revenue growth by 2006.

As first reported in The Australian, Telstra has been in talks to acquire Indonesia's third largest telco, Exelcomindo, which would deliver a long-sought-after extension of its mobile operation in Hong Kong and a more robust overseas presence.