EOH rescue bid fails to excite
Technology firm EOH’s reassurance to the market on Wednesday that it is trying to save its contract with Microsoft failed to resuscitate its share price.
Technology firm EOH’s reassurance to the market on Wednesday that it is trying to save its contract with Microsoft failed to resuscitate its share price.
The company’s stock slid a further 2.02% to close at R19.40, after a Stock Exchange News (Sens) announcement gave little detail on what transpired in an urgent meeting between the two companies on Tuesday evening.
EOH’s shares plummeted by more than 34% on Tuesday, reaching an eight-year low, on the news that the software giant wanted to ditch it as a direct reseller of Microsoft licences.
EOH was served a 30-day notice by Microsoft, which wants to terminate a partnership agreement with EOH’s subsidiary, EOH Mthombo.
Microsoft initially did not give EOH its reasons for wanting to cancel the contract.
In a Sens announcement on Wednesday, EOH said both firms are aware of the urgency needed to resolve the matter and deliberations between the two are being prioritised.
EOH only confirmed that a meeting was held between its senior executive, including CEO Stephen van Coller, and the Microsoft leadership in which EOH reiterated its commitment and willingness to understand what Microsoft requires from the company.
The Sens announcement said EOH is expecting a “considered communication” from Microsoft. “Shareholders will be advised as and when additional information is obtained.”
A Microsoft spokesperson, who declined to be named, said the company is not at liberty to disclose what was discussed at Tuesday’s meeting with EOH.
“While Microsoft can confirm that our licensing solution partnership and Microsoft partnership network agreement with EOH Mthombo has ended, we are lawfully precluded by our confidentiality covenants with our partners from responding to anything further on this matter,” said Microsoft.
Though EOH says the reselling contract would only contribute about R10m of EOH’s profits in the current financial year, analysts point out that keeping a good relationship with Microsoft is important for any company in the IT space and being seen to have fallen out of Microsoft’s favour is contributing negatively to EOH’s already dented public image.
Once an industry darling, EOH’s share price has lost about 86% over a two-year period following a number of allegations of corruption related to publicsector tenders, including at Eskom, which has since cleared the firm of any wrongdoing.