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Journalism of Courage
MUMBAI, FEBRUARY 7: In yet another takeover deal in the infotech sector, BFL Software Ltd (BFL) has acquired Mphasis Corporation (Mphasis) of the USA in an all-stock deal worth over Rs 876 crore. The two companies on Monday announced their intent to form a combined entity under the leadership of Jaithirth (Jerry) Rao of Mphasis who will be chairman.
The board of directors of BFL Software will meet on February 14, 2000 to consider the proposal to issue 6.5 million equity shares of BFL Software on a preferential basis in exchange for common stock equivalent securities of Mphasis Corporation. Consequent to this transaction, Mphasis Corporation will become a wholly-owned subsidiary of BFL Software. As the BFL scrip closed at Rs 1,348 on the Bombay Stock Exchange, the value of 6.5 million BFL shares works out to Rs 876 crore.
However, small investor questioned the valuation of Mphasis deal. Says D Pawan, a small investor of BFL Software: “We (the small investors of BFL) would like to know on what basis thecompany has arrived at such a high valuation of Mphasis which has no background in creating value for shareholders… BFL must be transparent about the entire deal and valuation of the Mphasis.”
This is the second major takeover deal in the infotech sector after Satyam Infoway acquired IndiaWorld Communications for Rs 499 crore last year. There was widespread criticism about the valuation of IndiaWorld as well.
The BFL issue will be in accordance with the SEBI guidelines. This transaction is subject to approval of all regulatory authorities in India and US and is also subject to the approval of the respective boards of directors and shareholders.
Barings, which is an investor in Mphasis and which holds 52 per cent of the paid-up capital of BFL, will remain a significant investor in the combined entity, the release said. Other investors in Mphasis incude the Richard Braddock, CEO of Priceline.com and director of E-Trade. The company completed one year of operations in December 1999 with a revenue of $ 6million. It has had three rounds of funding in the US with significant venture capital participation.
The transaction will provide enormous synergies to the combined entity by putting together the front-end capabilities and marketing expertise of Mphasis, with the scale benefit of BFL’s established development experience. BFL has a sizable offshore development facility at Bangalore with a CMM-SEI Level 4 certification and marketing offices overseas.
Mphasis is in the business of providing web-enabled solutions for established companies and internet start-ups. It has domain expertise in the financial sector and develops personalised e-business solutions, the release said. Jerry Rao was formerly head of Citibank’s Development division and chairman and CEO of Transaction Technology Inc. Mphasis is headquarted in California and has development offices at Pune and Mumbai. The combined entity will have 1,300 employees.
BFL was advised by Enam Financial Consultants and Mphasis by DSP Merrill Lynch on thedeal. This transaction will enable the combined entity to become a significant participant in the high-value interactive architect IT segment that is estimated to grow from $ 8 billion by 2003.
