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Cisco signs empowerment equity deal

Business Report

September 5, 2007
By Thabiso Mochiko

Johannesburg - US technology group Cisco Systems has sold a 25.1 percent stake in newly established Cisco SA Services to empowerment group Lereko Investments, Cisco's employees and an educational trust that will facilitate scholarships for black students.

Cisco did not reveal the value of the transaction but said it would partly fund it.

Lereko is headed by former North West premier Popo Molefe and former environmental affairs and tourism minister Mohammed Valli Moosa.

As part of the deal, the empowerment partners will receive shares in the US entity that are equal in value to the 25.1 percent stake in Cisco SA Services.

The services business will facilitate skills development, help drive the scholarship programmes, maintain Cisco products used by the local market, and help identify large infrastructure contracts for Cisco, especially investments related to development ahead of the 2010 soccer World Cup.

Cisco has won a R454 million contract, which will be shared with Neotel and Business Connexion, to install an internet-based network for the State Information Technology Agency.

Hilton Romanski, Cisco's managing director for global ventures and acquisitions, would not comment on how many shares Lereko would receive, apart from saying it would be a "significant amount" with a lock-in period of 10 years. He said Cisco would issue new shares for the Lereko-led consortium.

Lereko will receive voting rights in the local entity and one seat on the advisory board, which was initially set up to advise and identify partners for Cisco.

The advisory board is led by businessman Dudu Kunene.

Lereko's participation on the advisory board could be seen as Cisco's move to limit its influence at the level of the board, which is one of the decision-making bodies for the local entity.

Mark de Simone, the vice-president of emerging markets, said: "The complexity of making sure we participated in the spirit of what South Africa wants to do in the next few years requires a lot of dialogue." The company needed to understand "what needs to be done and consult with local businesses".

Cisco joins T-Systems, SAP, Verizon, Fujitsu Siemens and Unisys, which have concluded empowerment equity transactions in the past few years. Last week Hewlett-Packard became the first international technology company to win government approval to invest R150 million in a training institution instead of selling equity.

For years, multinationals have been reluctant to do empowerment deals.

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