Published August 26, 2008

SingTel buys 60% of rival IT company SCS

Mandatory offer for rest of shares to be made at $1.50

By WINSTON CHAI
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(SINGAPORE) Singapore Telecommunications (SingTel) has bought a 60 per cent stake in Singapore Computer Systems (SCS) in a move that will cement its dominance in the local government sector and open the door to more IT services revenue from regional markets.

SingTel's wholly owned subsidiary NCS said yesterday it has bought 93.1 million shares in mainboard-listed SCS from Green Dot Capital - a unit of Temasek Holdings - for $1.50 each. This is a 12 per cent premium to SCS's price of $1.34 a share before a trading halt last Friday.

Green Dot told SCS it was reviewing its stake in the company on July 30 - a move that sent the share price up 22 per cent in the following weeks as investors reacted to an imminent deal.

NCS said yesterday it will make a mandatory offer for all remaining SCS shares at the same price of $1.50, valuing SCS at $233 million. NCS will delist SCS once the deal is completed.

SCS provides technology services such as systems integration, infrastructure management and business continuity and is widely viewed as the main rival to NCS in Singapore.

Both companies have a strong footprint in the local public sector, consistently ranking among the top three suppliers of technology services to government agencies here.



According to statistics from the Infocomm Development Authority of Singapore, SCS was the second-largest government IT contractor in FY 2007 by procurement value, while NCS was ranked third. The consolidation is likely to lift the SingTel subsidiary to top spot this year.

Through the acquisition of its arch rival, NCS is guaranteed a steady stream of local income for the next eight years from the largest IT contract ever awarded by the Singapore government.

This is because the One Meridian group, which comprises SCS and its US-based partner EDS, won the hotly-contested $1.3 billion SOEasy (Standard Operating Environment) contract in February this year.

NCS lost out even through it was tipped to be the front runner for the tender, which replaces the age-old hardware ownership model in the public sector with a long-term outsourcing approach for greater cost efficiency.

'The acquisition provides SingTel with a larger role in the SOE project in Singapore, considering that SCS is part of the winning One Meridian consortium. It also strengthens SingTel's position in the local IT services market,' said Foong King Yew, research director of communications at technology analyst firm Gartner.

Besides lifting local sales, NCS will gain entry to new markets in South-east Asia as a result of the buyout. NCS's overseas expansion has been centred on the Middle East, China, Malaysia and Australia.

SCS also has a presence in Malaysia and China but has additional offices in Indonesia, Thailand, Brunei and the Philippines, which collectively account for about 20 per cent of its overall sales.

'This move is part of SingTel's strategy to be a significant solutions provider to business customers in the Asia-Pacific region,' said SingTel Singapore chief executive Allan Lew. 'The combined IT capabilities and capacity of SCS and NCS will extend SingTel's ability to deepen its relationships with its customers in Singapore and overseas.'

SingTel shares were up 1.7 per cent to close at $3.50 yesterday.