EOH CEO Stephen van Coller. Picture: TREVOR SAMSON
EOH CEO Stephen van Coller. Picture: TREVOR SAMSON

EOH CEO Stephen van Coller appears to be quickly going through his long, daunting to-do list at the company, a once high-flying tech outfit that sells computer software to everyone from blue-chip companies to government departments.

But it will probably take much longer for investors to erase painful memories of the past few months when the bulk of their equity was wiped out following allegations of governance flaws.

In addition, Van Coller, who is shutting down a business unit that brings in substantial sales to the group, should probably strike a fine balance between his cleanup drive and taking commercially logical steps.

It’s not clear what the money was used for, but chances are some of it might have been used to pay bribes to secure lucrative government contracts.

Van Coller, a former deals banker at lender Absa, was drafted in September 2018 after allegations of underhand dealings involving EOH and its client, the government, sent its share price tumbling, and tarnished the company’s credentials as one of the must-haves in fund managers’ portfolios.

Under van Coller, EOH has largely cleared its long-standing leadership structure, with the departure of several executives that include founder and chairman Asher Bohbot. Most recently, directors Zunaid Mayet, Rob Godlonton and Pumeza Bam quit abruptly this week.

Van Coller this week released a forensic report into the five-month investigation he initiated. The report, compiled by ENSafrica, flagged “suspicious transactions” totalling R1.2bn from 2014 to 2017.

It’s not clear what the money was used for, but chances are some of it might have been used to pay bribes to secure lucrative government contracts.

If EOH’s share price is anything to go by, investors are still reluctant to commit. The stock has fallen about 9% this week, ravaged by the resignation of the three directors and release of the forensic report. It closed at R20 on Thursday, indicating a dramatic fall from grace for a company whose share price reached a high of R180 in 2015. 

The scandal also comes at the bad time for EOH. Investors are much more nervous following a number of high-profile accounting scandals that include Steinhoff’s shocking multibillion-rand accounting fraud that wiped out more than R200bn of shareholder equity. Tongaat Hulett’s investigation into a possible overstatement of profits by as much as R4.5bn has also dampened investor sentiment.

Van Coller’s determination to remove the blemish on the company goes as far as saying the business unit ensnared in the “suspicious transactions” will be shut down. This may be a step too far, however, given that the unit, EOH Mthombo, brings in 15%-20% of the company’s R18bn revenue. Why not sell it instead?  

Granted, there will likely be a shortage of buyers, with the ENSafrica report saying eight of its employees made payments to people who had done little to no work, engaged in unethical business practices, conspired with suppliers to inflate software sales and inappropriately gave individuals gifts to secure contracts.

However, putting the unit on the chopping block is unlikely to do more harm than what investors have already suffered. In fact, it might turn out for the best. The forensic report suggests that the mischief was not something systemic, being limited to just the eight individuals mentioned.

Moreover, Van Coller can use his deal-making background to argue that there’s something salvageable there.

Van Coller, who has had a stint as the head of mergers and acquisitions at telecoms group MTN, may hammer out a deal that might not fully replace lost revenues from EOH Mthombo, but could provide some cash to pursue an acquisition of another company that can be built up over time.

Shareholders, who are backing his drive to clean up the company, and eventually put it back on a growth trajectory, will wake up less concerned about the future of the business. 

They will probably have a bigger smile on their faces if those responsible are held accountable. EOH has already filed a criminal complaint with the Hawks and it has launched a civil lawsuit against those who are alleged to be involved.