EOH shares drop more than 14% despite promises to root out corruption

Technology service provider EOH's [JSE: EOH] shares fell more than 14% on Monday in the wake of Microsoft's decision to terminate contracts with one of its subsidiaries last week.

The share, which opened at R20.05 on Monday, plummeted as low as R15.20 during the day's session. By 16:15 it was trading 14% lower at R16.77.

The group on Monday had issued an update on a decision by Microsoft to terminate a channel partner agreement with its subsidiary EOH Mthombo.

On February 12, the company had informed shareholders of Microsoft's decision – which means EOH Mthombo would not be able to be a direct seller of Microsoft licences. The move would result in a R10m knock on profits for EOH's current financial year, the group warned. At the time, EOH was not given reasons for the termination.

The group updated shareholders on February 13 on the matter, indicating that there was a meeting between its senior executives, CEO Stephen van Coller and Microsoft's leadership.

"Both EOH and Microsoft are aware of the urgency of this matter and deliberations are a priority," the group said at the time. Microsoft is one of EOH's important technology partners.

On February 15, the group issued another shareholder notice on developments.

The group acknowledged that over the past two years there had been negative market perceptions due to allegations which had been raised against it and that its reputation had been "tarnished".

EOH said it was working to "better understand" Microsoft's concerns and rationale for the decision to terminate the contract. Since meeting with EOH, Microsoft said it would take EOH's proposals "under consideration and further review", the group informed shareholders.

In the meantime EOH initiated an internal investigation into EOH Mthombo's Channel partner business unit. The group has appointed law firm ENSafrica to conduct forensic investigations.

The group assured it was committed to "zero-tolerance" of impropriety and "upholds the highest levels of governance and ethical conduct".

On Monday the group said that Microsoft had still not "officially provided" any confirmation for the reasons of the intended termination. "This matter is now sub judice", EOH said.

ENSafrica will continue to provide EOH on progress of investigations, while Van Coller called for anyone with evidence to come forward.

"I again encourage anyone who has evidence to please come forward so we can root out any historical, unethical business practices both within EOH and the broader country," he said.

Last week van Coller wrote an open letter to stakeholders indicating that steps were being taken to strengthen governance at the group.

"In any large organisation of over 11 500 people, one must expect there to be challenges. In order to address these challenges, we partnered with one of the leading forensics and compliance experts in the country, Steven Powell, who together with his team at ENSafrica, conducted a number of investigations and helped us to implement various governance and compliance initiatives, which have yielded some positive developments," he said.

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