Melbourne IT cashes in Digital Brand Services unit

DBS has been sold to US-based Corporation Service Company for AU$152.5m as Melbourne IT looks to focus more on the hosting side of its business.

Hosting and internet service provider (ISP) Melbourne IT has revealed that it has sold its Digital Brand Services (DBS) division for AU$152.5 million to US-based Corporation Service Company after entering a trading halt earlier today .

The decision was made after a strategic review of Melbourne IT's operations. The company had already been thinking about selling off some of its business units to large overseas companies in November last year.

Melbourne IT said that DBS, launched in 2008, was one of its divisions impacted by reduced government spending. DBS provides online brand protection and consultation services, according to the company.

Part of the reason for the sale was to focus the company more on its hosting business, according to Melbourne IT managing director Theo Hnarakis.

"We had DBS, which was very internationally focused and targeted more towards marketing department and so on, but we had our other business which was based in Australia to provide hosting services for small businesses and enterprises," he told ZDNet. "It really made it difficult to allocate resources, planning the technologies, and planning the strategies.

"What this has done is created a much cleaner structure."

Corporate Service Company, which as its name suggests provides corporate management services to businesses, bought DBS because of its global scale and capabilities, according to the Corporate Service Company vice president Jim Stoltzfus.

The sale will impact 200 staff members within DBS. Melbourne IT will retain 500 staff members, mostly based in Australia.

Melbourne IT won't be receiving the lump sum of AU$152.5 million in one go, as 10 percent of the money will be held in escrow for 15 months. The company is expected to receive AU$135 million to AU$140 million, which is more than enough to wipe out its outstanding debt of US$35 million, and will be considering a range of capital management options.

It is open to acquisitions as well as returning value to shareholders, Hnarakis said.

"Management and the board are now concentrating on updating the strategic plan for the business following the divestiture so we can provide clarity to shareholders before the annual general meeting in May," he said in a statement. "We are confident that Melbourne IT's remaining business divisions will benefit significantly from the arrival of new gTLDs , the completion of the Transformation program , and management's clearer focus on executing our plans."

Money from the sale of DBS will contribute to Melbourne IT's 2013 financial year, which began in January.