Getronics debt struggles worry customers

Getronics NV, one of Europe's largest IT services companies, is worrying existing customers and losing out on new deals as it tries to restructure its finances.

Customers have been asking questions about Getronics' continuity since November of last year, when the Amsterdam company announced a second round of job cuts to further reduce its cost base, the company has said. Troubles for Getronics worsened Wednesday as it failed to persuade bondholders to back a life-saving debt swap.

The swap, announced Jan. 10, would reduce the company's nearly €450 million (US$487 million) in net debt to between €100 million and €120 million. However, only 24.5 percent of bonds were tendered by the Wednesday deadline. Getronics will present a new offer on or before Feb. 5, the company said in a statement.

Getronics' Chairman and Chief Executive Officer Peter van Voorst has said that the changing of bonds into shares "will remove market uncertainties, and take away any doubt that may exist about the financial solidity" of Getronics. The company amassed much of its debt when it bought U.S. rival Wang Global in 1999.

No major customers have abandoned Getronics, company spokesman Herbert van Zijl said Thursday. However, it does cost Getronics management "a lot of time to explain to customers what the financial state of the company is" and Getronics is being passed over by potential new customers.

"This is an issue we need to get off the table so we can again fully join the race (for customers)," said Van Zijl.

Meanwhile, Getronics customers should prepare contingency plans in case Getronics can't overcome its financial troubles, said Andrew Parker, a senior analyst at Forrester Research BV in Amsterdam.

"The CIOs (chief information officers) of organizations that buy services from Getronics should at least keep their eyes open and be aware of any disaster recovery steps they may have to take in case Getronics collapses," he said.

Relative to some of its competitors, such as IBM Corp.'s Global Services division and Accenture Ltd., Getronics looks "in much more shaky financial position," Parker said.

"I am convinced that organizations that are looking to create new relationships with IT services companies will push Getronics down on their lists," he said.

But Rijswijk, Netherlands, Hollandse Beton Group NV (HBG), which in August last year signed a three-year outsourcing agreement with Getronics for 5,000 workstations in the Netherlands and Germany valued at €13 million, said it continues to work with the Dutch IT services company.

"We have a contract with Getronics and are working on the execution of that contract," said HBG spokesman Arno Pronk. "Getronics is informing us well about their financial situation."

Meanwhile, Getronics' partners seem to be preparing for the worst. Dell Computer Corp., an important partner for Getronics' desktop support and outsourcing business, signed a deal with T-Systems International GmbH, the Frankfurt, Germany-based services offshoot of Deutsche Telekom AG, late last year.

"One might see that as kind of a hedge in the event Getronics does go down," Parker said.

Once Getronics clears this financial hurdle, which Parker expects the company to do, many more hurdles will have to be jumped.

"It seems to be that the management of Getronics has been taking the steps necessary to stabilize the financial position. The current crisis is one that they will weather, but there are some longer-term issues. It is a very competitive market at the moment," Parker said.

According to Forrester, the Western European IT services market will grow in the low single digits this year and showed basically no growth in 2002 compared with 2001.

Getronics for the first six months of last year reported a net profit of €4 million on €1.84 billion in revenue.

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