UPDATE: Satyam, Tech Mahindra Boards To Consider Merger Wednesday
March 20 2012 - 8:44AM
Dow Jones News
The boards of Tech Mahindra Ltd. (532755.BY) and associate
Satyam Computer Services Ltd. (500376.BY) will consider Wednesday a
merger of the two Indian software services providers to create a
company with a market value of nearly $3.4 billion.
In separate but similar regulatory filings Tuesday, the two
companies said that their boards will also consider the
amalgamation of their wholly owned units Venturbay Consultants Pvt.
Ltd, C&S System Technologies Pvt. Ltd., CanvasM Technologies
Ltd. and Mahindra Logisoft Business Solutions Ltd. with Tech
Mahindra.
Satyam and Tech Mahindra are together India's fifth-largest
software services provider with annual revenue of $1.13 billion
each. The merged company will close in on HCL Technologies Ltd.,
India's fourth-largest outsourcer with revenue of $3.55 billion,
and will stretch the gap with MphasiS Ltd. with $1.12 billion in
revenue.
Earlier this month, people familiar with the matter told Dow
Jones Newswires that Morgan Stanley India Co. and JP Morgan Chase
& Co. have been named the bankers for the proposed merger.
Tech Mahindra, based in the western city of Pune, owns 42.7% of
Satyam. It took over the Hyderabad-based company in April 2009
after Satyam's founder and then-chairman confessed to overstating
profits and cash balances in January that year. Satyam has since
then been recovering from the fraud with a steady improvement in
financial performance and has also cleared various legal
hurdles.
Shares of both Satyam and Tech Mahindra jumped on the merger
news.
Satyam shares gained 4.7% to INR74.15, valuing the company at
INR87.25 billion ($1.7 billion), while Tech Mahindra stock climbed
5.1% to INR648.35 with total market value of INR82.59 billion. The
Bombay Stock Exchange's benchmark Sensex closed 0.3% higher.
Based on the current share prices, it is likely that one share
of Tech Mahindra will be issued for nine of Satyam, said
Jagannadham Thunuguntla, head of research at SMC Global Securities
Ltd. With this ratio, Satyam's shareholders will hold about 51% in
the combined entity while Tech Mahindra's will own about 49%, he
added.
The merger would create a company which would offer software
services across sectors such as financial services, manufacturing,
retail and telecommunications. The new entity would also be
eligible to compete for larger contracts, which typically elude
smaller firms.
For Tech Mahindra, which earns most of its revenue from the
telecommunications industry, the merger would reduce its dependence
on the sector and on its largest client and parent BT Group
PLC.
-By Dhanya Ann Thoppil, Dow Jones Newswires; +91-9886929464;
dhanya.thoppil@dowjones.com
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