Oracle Lands $153M Svyazinvest Job

Telecoms holding Svyazinvest on Wednesday said it will pay $153 million for an automated management system from U.S. software maker Oracle in the biggest deal to date for the country's information technologies market.

Svyazinvest will buy Oracle's E-Business Suite for its seven subsidiaries to help facilitate their restructuring.

The enterprise resource planning system automates a diverse spectrum of business activities, ranging from production to accounting and a subsidiary of Otkrytiye Tekhnologii, a top domestic systems integrator, will install the software and provide technical support to the daughter telecoms over the next three years.

Svyazinvest earlier this year wrapped up the first stage of its reorganization, having consolidated its 70-plus local subsidiaries into seven super-regional companies. It is now in the midst of streamlining business among its daughters and that is where the ERP system comes in.

At $153 million, the deal is the biggest systems integration contract in Russia's corporate history, outstripping the previous record -- a similar deal signed between Yukos and Microsoft in 2000, worth $100 million.

Three of the super-regionals have already voted to purchase the ERP system from Oracle, while decisions from the other boards of directors are expected in coming days.

Center Telecom, Volga Telecom and South Telecom approved the purchase Wednesday. Sibir Telecom and Dalsvyaz are to hold votes Thursday, while Uralsvyazinform's decision is expected Friday and Northwest Telecom's will come next Tuesday.

As the Oracle contract becomes an increasingly done deal, some of Svyazinvest's minority shareholders question why no tender was held.

They argue that management should have solicited bids from competing firms before making such an expensive decision and it should have tested a pilot system with just one of the daughter firms.

The California-based software firm's main rival in ERP systems is Germany's SAP. Alexei Shlykov, SAP's managing director in Moscow, said Svyazinvest never informed them of any tender.

"We have sent a proactive commercial proposal to Svyazinvest management asking them to consider our products as a possible solution," he said.

In a statement released Wednesday, Svyazinvest said it chose Oracle's software on the recommendation of Yunikon, a Moscow consulting firm.

Analysts were split in their opinion on the way the deal came about.

"The deal is worth around 6 percent of the seven companies' combined annual sales and around 80 percent of their annual net profits," said Yevgeny Golosnoi, analyst at Troika Dialog. "Such a major transaction should be conducted with a tender and with the approval of other shareholders."

Alexei Yakovitsky, an analyst at United Financial Group, took a broader view, saying the $153 million spread over seven companies and three years divides out to modest annual spending of $5 million to $10 million for each subsidiary.

"In our view, the proposed figure does not look high," he said, adding that "[these systems] are likely to produce tangible efficiency improvements."