Tech Mahindra, the software solutions firm part of Mahindra & Mahindra group, has offered Satyam Computer Services a cashless merger. The deal would involve M&M taking the management control of the combined entity, Economic Times. Yesterday it was reported that Satyam is in merger talks with Delhi-based HCL Technologies and Bangalore-based MindTree. While Mindtree has subsequently denied any such discussions, HCL Tech has not come out with any such clarifications. There are also reports of other suitors like HP, Capgemini, IBM, Cognizant.
Talks of management change have been doing the rounds since the Maytas deal, where Satyam was to shell out around $2 billion to acquire promoter owned firms in an unrelated business area of infrastructure and real estate development. Since then promoter holding has also fallen below 5%, and Aberdeen has become the largest shareholder. Institutional investors and mutual funds own 61% of Satyam, and they have been demanding management to take steps to revive the battered stock price. Satyam has appointed DSP Merrill Lynch as a merchant banker to review and suggest a plan to increase shareholder value.
The deal would bring a lot of value to both Tech Mahindra and Satyam as their is 'lack of business overlap' between the two firms. Tech Mahindra is focused on software services exports to telecom firms, and the deal would help it diversify across sectors. Also it will help Tech Mahindra diversify in terms of clients, as its anchor client British Telecom contributes to more than 50% of its revenues.
The promoter shareholding in Tech Mahindra is more than 80%, which includes 30% stake of Beritish Telecom. The firms market capitalisation is less than a third of Satyam's, and if the deal
fructifies it will create the third-largest IT company in India.