Following approval by India's Company Law Board (CLB),
Tech Mahindra Ltd. will acquire a controlling stake in fraud-hit IT services specialist
Satyam Computer Services Ltd. (NYSE: SAY) through its subsidiary, Venturbay Consultants Private Ltd.
Tech Mahindra's bid of Rs58 per share was accepted by Satyam on Monday, as no other bid came within 90 percent of that price. (See
Tech Mahindra Highest Bidder for Satyam.) In fact it was considerably higher than the two other bids received from technically qualified companies of Rs45.90 and Rs20.
Tech Mahindra is required to deposit a total of Rs1,756 Crores ($351 million) for 31 percent of Satayam's shares by April 21. On delivery of that payment, it will then purchase a further 20 percent of shares on the open market at a price no less than Rs58, to take the majority stake.
The CLB order restricts Tech Mahindra to just four directors and also imposed a three-year lock in, meaning the company must maintain its stake in Satyam at a minimum of 51 percent until 2012.
Satyam is one of India's largest IT services companies, but it suffered damage to its reputation and has been in limbo since the resignation of its chairman, Ramalinga Raju, after he admitted to falsifying accounts. (See
Fessing Up in India).
In spite of this, Satyam added business totaling over $250 million in the first two months of the year, demonstrating continued business potential. The acquisition also gives Tech Mahindra, in which
BT Group plc (NYSE: BT; London: BTA) hold a 31 percent share, both a bigger and more diverse portfolio of clients.
This will help Tech Mahindra challenge India's IT services leaders -- including Infosys, which welcomed the deal but warned of harder times ahead as it reported its annual results.
Infosys Technologies Ltd. (Nasdaq: INFY) reported revenues of $4.66 billion with a net income after tax and before exceptional items of $1.28 billion for the year ended March 31, 2009, demonstrating year-on-year growth of 10.1 percent.
However, the company stated that it expects revenue growth to flatten to 3.1 percent for the next financial year. This is down 6.7 percent and will deliver revenues in the region of $4.35 billion and $4.52 billion.
Tech Mahindra was unable to comment at this time on its plans for developing its telecom business, or on whether there would be job losses in either business as a result of the Satyam acquisition.
— Catherine Haslam, Asia Editor,
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