EOH bounces on damage limitation
Law firm to support internal investigation into cancellation of Microsoft reseller contract
EOH was one of the top-performing shares on the JSE on Friday, closing 14.6% higher after issuing a lengthy statement detailing steps the technology company has taken to improve its severely dented reputation.
EOH was one of the top-performing shares on the JSE on Friday, closing 14.6% higher after issuing a lengthy statement detailing steps the technology company has taken to improve its severely dented reputation.
EOH, headed by Stephen van Coller, said it has initiated an internal investigation into its subsidiary, EOH Mthombo’s channel partner business unit, after receiving a 30-day cancellation notice from Microsoft early last week.
Microsoft wants to cancel a channel partner agreement with EOH Mthombo that allows the technology company to directly resell Microsoft’s licences and products. EOH’s share price plummeted as much as 34% to its lowest levels in eight years on Tuesday on the news.
Microsoft did not disclose its reasons for the cancellation.
On Friday, EOH again did not provide reasons why Microsoft wants to end its relationship. It said only that its internal investigation will be supported by law firm ENSafrica and hinted that it is making progress in saving the contract.
“Following a recent fruitful meeting between the EOH and Microsoft leadership, Microsoft has advised that it is taking the EOH proposals under consideration and further review,” EOH said in a Sens communication.
However, Ruhan du Plessis, analyst at Avior Capital Markets, said the market would have wanted “a lot more colour” on the reasons behind Microsoft’s decision to end the reseller agreement given that it has been in place for more than 20 years.
“I think the concerns will remain until we have clarity on Microsoft’s justifications and whether the agreement is salvageable,” said Du Plessis.
While the market has taken some comfort from the emphasis on governance and improvements made by EOH so far, it is still “clearly expecting the worst”, he said.
“However, a continued review by ENSafrica will provide investors with some peace of mind that the underlying agreements and relationships with suppliers and clients are indeed of a sound nature.”
EOH appointed ENSafrica a while ago to perform monitoring and oversight of all EOH’s major public sector bids, contracts and engagements. ENSafrica has also reviewed all EOH’s big contracts with the public sector.
In Friday’s statement, EOH added that it is refocusing the unit that conducts business with the public sector away from complex and risky projects.
Public sector contracts damaged EOH’s reputation, severely knocking its share price after allegations of corruption involving a SA Social Security Agency contract surfaced.
In January, the company was again mentioned regarding reportable irregularities flagged in Eskom’s interim results.
On Friday, EOH said that the reference to it in the Eskom statement stemmed from an unsubstantiated news story and that Eskom cleared EOH of wrongdoing in a Sens announcement on January 31.