British Telecom may have found a buyer for its 31% stake in Tech Mahindra. BT has approached Tata group company TCS to buy its stake in Tech Mahindra, according to this report. Buying this stake would make sense for TCS as it has a thriving telecom practice, contributing 17.4% of total revenues for FY07-08. Also Tech mahindra needs BT as its client, because the latter contributes 65% of the revenues for Tech Mahindra. Private equity giants such as KKR, Apax Partners, Texas Pacific Group, Temasek and Carlyle have also reportedly showed an interest.
Also this might be a good time for BT to exit from the Indian IT sector which seems to be slowing down. Tech Mahindra is currently trading at Rs 730, which values the stake of BT at Rs 2749 crore or $603 million. But the 52-week high of Tech mahindra is at Rs 1550, which more than double of which it is trading at presently. Tech mahindra has also recently bagged a $250 million multi-year contract from a North American telecom services firm. Tech Mahindra has contracts from BT exceeding $1.7 billion. Also exit of BT would allow Tech Mahindra to get more clients in the telecom space.
Buying stake in Tech Mahindra may make sense for TCS as it has more than 8,700 employees working in its telecom practice and it contributes around $1 billion to its revenues. Also TCS is said to be acquiring Cit's BPO in India for a sum of around $475-$500 million.