RHS and Tornado swap shares, but delay merger talks

RHS Company and Tornado Systems, two of Romania's biggest IT&C distributors, which have recently got the Competition Council's approval to combine their businesses into one, are for the time being planning to integrate their operations to slash costs.

Talks about a possible merger are not scheduled on the "medium term" between the two firms' shareholders.

"Legally, the structure of the deal is not included in the 'merger' category. Practically, an operational integration is being carried out, which means putting together the two companies' know-how and resources," Dragos Popescu, general manager and owner of RHS, told ZF, thus suggesting the delicate discussions about control over the new entity have been postponed for later. "First, we want to specify there will not be any new entity, at least on the medium term. In the first stage, control in the two companies will be held by the current shareholders, and only the shareholder structure will change through a share swap. We plan to put up a partnership with equal rights within a year. The plan includes a capital inflow of another 7-8m euros during next year".

Which are the first effects of changes brought by the agreement between the two firms? The companies have started segmenting their activity and have a joint central headquarters, RHS' head says.

Popescu says, "the businesses of RHS Company and Tornado Sistems are 85% complementary (...) and the client portfolio is also complementary".

As for personnel, Popescu states the two companies are not planning any layoffs and intend to keep their 200 employees. He has not provided additional data, but a comparison between the current number of employees and the one the two firms had in late 2008 shows distributors have dramatically cut their headcount. The move is not surprising, though, as plummeting sales have prompted similar actions in the case of other players on the market as well.

Popescu says the IT&C distribution market has halved this year, but RHS and Tornado will see a smaller decrease together.

The two firms expect 120m-euro turnover and a 1-2% profitability rate for this year.

One of the biggest problems related to the operational integration of the two companies pertains to the unification of IT systems.