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Hyderabad/Bangalore: Bringing the curtains down on a three-year saga, Tech Mahindra and Mahindra Satyam on Wednesday announced the two entities are merging to create a $2.4-billion IT services firm. CP Gurnani will be the CEO of the yet-to-be-named company, which will be based in Mumbai. The merger was carried out by way of a share swap in the ratio of 8.5:1, ie, for every 8.5 shares held in Mahindra Satyam, the shareholder will get one share of Tech Mahindra. The Mahindra Group will own 26.3% in the new entity, with Tech Mahindra stakeholder British Telecom having a reduced 12.8% stake, down from 23.2%. The rest will be held through a treasury stock of 10.4%, and Mahindra Satyam and Tech Mahindra public shareholders retaining 34.4% and 16.1%, respectively. The combined entity will have over 350 clients in sectors like telecom, manufacturing, BFSI, media and retail. It will have over 75,000 employees, with a presence in over 52 countries. The company will not see any redundancies, officials said. The Tech Mahindra scrip closed 5.48% higher at R683.90 while Mahindra Satyam closed 4.59% higher at R77.55 on the BSE, on a day when the Sensex rose 1.65%. Tech Mahindra chairman Anand Mahindra said: “This merger will help propel the combined entity into the top tier of Indian software and services companies, achieving the Group’s key objective of being in a leadership role in each of our focus business areas.” Tech Mahindra acquired 43% in Satyam Computers and renamed it Mahindra Satyam in 2009, after Satyam founder B Ramalinga Raju said he had fudged its accounts, plunging the company into a crisis. Sanjeev Hota, senior analyst with the brokerage firm ShareKhan said: “Separately, the firms have not done well. So, this merger was required for them to compete better. This has resulted in a much stronger entity. The swap ratio too, has met forecasts. The market had expected a swap ratio of 1:9, so, it is more or less in line with expectations, but on the face of it, it seems more inclined towards Tech Mahindra stakeholders.” Analysts said there was a great opportunity of cross-selling their services with the birth of the new entity. Although Vineet Nayyar, managing director of Tech Mahindra and vice-chairman of Mahindra Satyam had said the amalgamation will place the firm in the league of the “big boys”, analysts have pointed out that catching up with the top four – TCS, Infosys, Wipro & Cognizant would be an uphill challenge. “With this size, the combined entity stands a good chance of getting bigger business, bigger projects and bigger clients. The entity can cater to more project verticals in comparison to the standalone basis by these companies. However, it will take considerable effort and time for it to reach the league of Infosys and TCS,” said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities. Source: Financial Expres
