Tech Mahindra announced its long-awaited buyout of IT outsourcer Satyam Computer yesterday, creating a new force in the sector with annual revenue of US $2.26 billion. The merger between these companies is finally put to rest, after the boards of both companies at their respective meetings yesterday approved a merger of Mahindra Satyam with Tech Mahindra along with wholly-owned subsidiaries of both companies.
The merger will create India’s fifth largest information technology services firm, with a combined revenue of over Rs 10,000 crore. Tech Mahindra bought a 42.7 per cent stake in Hyderabad-based Satyam in April 2009 when the group was on the verge of collapse following an accounting scandal.
The company has since operated under the name Mahindra Satyam and has emerged from the crisis profitable, posting a net gain of 3.08 billion rupees for the last quarter of 2011.The takeover of the remaining stake will involve an exchange of stocks, with Satyam shareholders receiving one Tech Mahindra share for every 8.5 Satyam shares. The merger is expected to be completed in six to nine months.
Satyam's new board of directors, which met to select the highest bidder, chose Tech Mahindra following its bid of Rs 1,757 crore for 31 per cent stake in the scam-tainted IT giant. Tech Mahindra offered Rs 58 for each Satyam share. Mahindras own 48% in Tech Mahindra but nothing in Mahindra Satyam. However, Tech Mahindra owns a little over 42% in Mahindra Satyam via the SPV, Venture Bay Consultants.
Shares of Tech Mahindra and Satyam Computer Services (Mahindra Satyam) are trading higher by 4% each, extending their over 8% rally in past two days, after the announcement of the merger of Mahindra Satyam with Tech Mahindra.Tech Mahindra is trading at Rs 712 and Mahindra Satyam at Rs 80.70 on the Bombay Stock Exchange. Engineering major Larsen and Toubro (L&T) and private-equity firm WL Ross were among the other major contenders for the Hyderabad-headquartered Satyam. L&T already holds 12.04 per cent stake in Satyam.