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Tech Mahindra joins top tier with Satyam

Before the scandal,Satyam was ranked India's 4th-largest and Tech Mahindra was 6th-largest.

Written by Reuters | Mumbai |
April 14, 2009 11:52:20 am

Tech Mahindra won a bidding auction for a majority stake in fraud-hit Satyam Computer Services Ltd,edging out Larsen & Toubro,seen by some analysts as the favourite bidder.

Tech Mahindra’s shares surged by a quarter,before trimming gains.

Before Satyam’s scandal was disclosed in January,Satyam was ranked India’s fourth-largest outsourcing firm and Tech Mahindra was sixth-largest so the combined firm,even allowing for overstatement of accounts by Satyam,is expected to be the top-tier outsourcer.

The Satyam buy will help Tech Mahindra,in which Britain’s BT Group holds about 31 per cent stake,diversify its services by reducing its reliance on the telecoms industry.

The sale should help restore confidence in the local industry at a time the economic downturn has already slowed growth. So,the sale is supportive for leading Indian outsourcing rivals Tata Consultancy Services,Infosys Technologies and Wipro.

Leading IT companies have always maintained Satyam was a one-off,not a reflection of the broader industry.

Tech Mahindra gets more than half its revenue from Europe,and the Satyam purchase would help it significantly expand its presence in the United States.

Tech Mahindra played the bid well,being most publicly reluctant to commit and continually expressed worries over Satyam’s liabilities.

It has been three months and one week since India’s biggest corporate scandal

broke,and the government has been keen to limit the impact of the scandal. The decision comes just days before month-long voting in national elections starts.

Tech Mahindra to pay $351 million for 31 per cent preferential allotment of new shares,then to make open offer for further 20 per cent at 58 rupees a shares,valuing the company at about $1.1 billion on paper.

The bid price is higher than where Satyam shares have traded since the fraud was revealed,except for a few days in late Jan and early Feb,so an open offer is most likely to be attractive to those who bought after the fraud was disclosed.

If the open offer is not fully subscribed,Tech Mahindra has an option of second preferential issue to raise its stake to 51 per cent.

Infosys Technologies Ltd,the second-largest outsourcing firm reports Jan-March and 2008/09 fiscal results on Wednesday.

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