British telecom giant BT is planning to sell its stake in the software services arm of Mahindra group, Tech Mahindra. BT holds 31% stake in Tech Mahindra and has decided that the holding does not fit its long-term strategy, reports Financial Times. Calculating on today’s closing price of Rs 777, this stake could fetch upto $670 million. Its market capitalisation is $2.15 billion. Mahindra will not be looking to buy the stake as it will require it to delist Tech Mahindra.
In 2006, Tech Mahindra had signed in what was one of the biggest outsourcing deal with British Telecom that was expected to generate revenues of over $1 billion over five-year . About two thirds of Tech Mahindra’s $943 million revenues are accounted for BT. Though not exactly a captive BPO, BT seling its stake in Tech Mahindra could be seen as a trend. Recently UK-based insurance major Aviva sold its captive BPO unit to WNS Holdings for $230 million.
The sale will generate a lot of interest from private equity players and may be one of the biggest deals in the outsourcing space. Tech Mahindra was formed by BT and Mahindra as a joint venture in 1998, known then as Mahindra British Telecom. Even before its listing, BT was Tech Mahindra’s largest customer, responsible for 68% of its revenue. As part of the IPO, BT reduced its stake in Tech Mahindra to 36% from 42%, selling 5.73 million shares for $47 million.