TCS to merge CMC with itself, to issue shares worth around $500M

India's largest software services provider Tata Consultancy Services Ltd has obtained its board's approval to merge its public listed subsidiary CMC Ltd with itself, as per a stock market disclosure.

As per the amalgamation scheme, approved by the two companies' boards at separate meetings on Thursday, shareholders of CMC will receive 79 equity shares of Re 1 each of TCS for every 100 equity shares of Rs 10 each of CMC held by them.

The swap ratio has been arrived at based on the valuation report prepared by B S R and Associates LLP. The appointed date for the proposed scheme is April 1, 2015.

Based on the last traded share price of the two firms, the overall merger is worth $1.05 billion. However, TCS is not creating treasury stock and the merger would lead to fresh issue of shares worth Rs 3,134 crore (around $500 million).

Shares of CMC closed at Rs 2,187.65 on BSE, up 1.9 per cent, while TCS' shares dropped 0.8 per cent to close at Rs 2,678.85, in weak Mumbai market on Thursday.

The proposed merger announcement came after market hours.

“The amalgamation will enable TCS to consolidate CMC's operations in a single company with a rationalised structure, enhanced reach, greater financial strength and flexibility, aiding in achieving economies of scale, more focused operational efforts, standardisation and simplification of business processes and productivity improvement,” CMC said in the statement.

Incorporated in 1975 as a state-run IT services firm, CMC was acquired by TCS in 2001. Currently, TCS owns 51.12 per cent equity stake in CMC. It would not create treasury stock as part of the merger.

CMC in engaged in design, development and implementation of software technologies and applications, providing professional services in India and overseas, and procurement, installation, commissioning, warranty and maintenance of imported and indigenous computer and networking systems, and in education training.

TCS Q2 net up

Meanwhile, TCS reported net profit of Rs 5,244.28 crore for the quarter ended September 30, 2014 up 13.2 per cent over the year-ago period but down 5.8 per cent sequentially. Excluding a one-time gain from an exceptional item in Q1, sequential net profit rose 3.2 per cent over the previous quarter.

The profit numbers were marginally below street expectations.

Total income increased from Rs 20,951.53 crore for the quarter ended September 30, 2013 to Rs 24,479.11 crore last quarter.

The company said it had 20,350 gross employee additions last quarter with a net addition of 8,326 people. It took total employee base to 313,757 people with a utilisation rate of 86.2 per cent (excluding trainees) and 81.3 (including trainees). The firm also crossed the milestone of having 100,000 women employees last quarter.

(Edited by Joby Puthuparampil Johnson)

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