NEC Australia buys CSG division for $227m

NEC Australia buys CSG division for $227m

Summary: After a strategic review of its business, CSG has announced today that it will restructure its print services division and divest its Technology Solutions business to NEC Australia in a deal worth over $200 million.

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After a strategic review of its business, CSG has announced today that it will restructure its print services division and divest its Technology Solutions business to NEC Australia in a deal worth over $200 million.

CSG entered a trading halt yesterday, pending a "transaction", and today emerged with the two announcements.

NEC will pick up CSG's Technology Solutions arm for $227.5 million in a deal expected to close on 2 July, if approved by the appropriate international regulatory bodies. The deal also includes the potential for an "earn-out payment" of up to $32.5 million. According to CSG, this amount will be based on "the level of additional earnings generated prior to 30 June 2012".

The Technology Solutions business under NEC will operate as an independent business to NEC Australia, and will report to NEC's local managing director, Alan Hyde.

A condition of the deal will prohibit CSG from continuing a technology services business for three years, following the NEC deal. It has assured the market, however, that the clause won't affect the company's ability to further grow the print services arm of the business.

NEC said in a statement today that the buy gives it the enterprise resource planning, customer relationship management, business intelligence and managed and cloud services strength it is looking for, to compete in the region. NEC Corporation president Dr Nobuhiro Endo said it will "allow the company to tender for some of Australia's largest ICT contracts".

In addition to the NEC deal, CSG has announced a restructure of its print services division, which is designed to trim millions of dollars from annual operating costs.

The restructure of the print services division follows an internal review, which focused on eliminating process duplication and improving operational efficiency.

CSG said that it would break the restructuring process into two phases, but offered the market little detail on what each phase would mean for the business. However, CSG has said that it expects phase one to deliver annualised cost savings of $13 million by September, while phase two would deliver $4 million in annual savings from its implementation date in June 2013.

CSG told ZDNet Australia that part of the cost cutting measures would be a reduction in headcount. CSG said that there would be redundancies on the cards, but wouldn't reveal whether they would be voluntary or forced.

Following the proposed restructure, CSG announced that it expects its earnings, before interest, tax, depreciation and amortisation (EBITDA), to be up to 30 per cent lower year-on-year.

The company said that its final result hinges upon the achievement of proposed savings goals, completing large contracts and the signing of new large deals.

CSG's managing director, Julie-Ann Kerin, said that return for shareholders would come from improving performance, through restructuring and renewing a sales focus.

"The restructure of the Print Services division will provide a solid foundation for the long term success of the business," she said.

CSG's shares have jumped following this morning's announcement, up over 20 per cent in mid-morning trade.

Topics: IT Employment, Hardware, Legal

Luke Hopewell

About Luke Hopewell

A fresh recruit onto the tech journalism battlefield, Luke Hopewell is eager to see some action. After a tour of duty in the belly of the Telstra beast, he is keen to report big stories on the enterprise beat. Drawing on past experience in radio, print and magazine, he plans to ask all the tough questions you want answered.

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