The boards of Mahindra Satyam and Tech Mahindra on Wednesday approved the merger of the two companies. This paves the way for the creation of India's fifth largest software services company by market cap, with revenues of $2.5 billion (Rs 12,500 crore).
“We will be in the category of the big boys,” said Mr Vineet Nayyar, Vice-Chairman and Managing Director, Tech Mahindra, at a news conference on Tuesday.
Shareholders will get two shares of Tech Mahindra (face value: Rs 10) for every 17 shares held in Mahindra Satyam (face value: Rs 2). This deal values Mahindra Satyam at around Rs 9,500 crore.
Stocks surge
The stocks of both companies surged on the bourses, Tech Mahindra gaining 5.48 per cent to close at Rs 683.9, and Mahindra Satyam rising 4.59 per cent to Rs 77.55.
The boards also approved the merger of their wholly-owned subsidiaries — Venturbay Consultants Pvt Ltd, C&S System Technologies Pvt Ltd, CanvasM Technologies Ltd and Mahindra Logisoft Business Solutions Ltd.
This is the culmination of a three-year journey when Tech Mahindra bought over Satyam Computer Services in 2009 through a government-conducted auction, after the founder-head of Satyam admitted to a fraud in the company.
The merger process could take up to nine months to complete and will be effective from April 1, 2011. The standard procedure for mergers — approvals of shareholders and courts, in this case of the Andhra Pradesh and Mumbai High Courts, and so on — will follow.
After the merger, the Mahindra Group will own 26 per cent in the combined entity, British Telecom 12.8 per cent, and around 10.4 per cent will be held as treasury stock; 34.4 per cent will be held by public shareholders of Mahindra Satyam and the balance 16.1 per cent by public shareholders of Tech Mahindra, said a release from the company. The intention of creating treasury stock is to allow the company greater liquidity when needed. This, especially in the matter of acquisitions, is on the agenda of the both companies.
Brand name
The brand name of the combined entity has not yet been decided upon, said Mr Nayyar. There is also no decision on re-listing on the New York Stock Exchange (where Satyam was de-listed from, post the scam).
The combined entity will have 75,000 employees, across 54 countries, and over 350 customers. Post the merger, the entity will have a net cash surplus of Rs 1,800 crore.
It will have a ‘go-to-market' strategy with a mix of revenues from telecom, manufacturing, technology, media and entertainment, BFSI, retail and healthcare. There will be a slight modification in the management structure of the merged entity. “Most of the operational business like sales and delivery will be unchanged. There will be some rearrangement in a few areas such as HR, finance and legal,” said Mr C. P. Gurnani, Whole-time Director and CEO, Mahindra Satyam.
Ernst and Young acted as merger advisors. Morgan Stanley and JPMorgan were bankers to the merger process.
The new entity will continue to contest legal cases against Mahindra Satyam, especially the ones regarding taxation, said officials.