2:17 swap for Tech Mahindra, Mahindra Satyam merger

Mahindra Satyam, the erstwhile Satyam Computer Services Limited, will be merged into Tech Mahindra, of the Mahindra & Mahindra Group. The deal was approved by the boards of the two companies today with an exchange ratio of two shares of Tech Mahindra (face value of Rs.10 each) for every 17 shares of the Mahindra Satyam (face value of Rs.2 each). The merger is expected to create India's fifth largest software services exporter, with revenues of approximately US $2.4 billion, 75,000-odd workforce and over 350 active clients including some of Fortune Global 500 spread over 54 countries. The boards of the two companies approved a proposal for merger along with certain wholly owned subsidiaries. The merger ends a chequered journey for the erstwhile Satyam Computer, which was on the verge of collapse after its founder chairman B. Ramalinga Raju admitted in January 2009 to a major accounting fraud involving overstated profits and inflated balance sheets. The Mahindra group would own 26.3 per cent in the combined entity, British Telecom 12.8 per cent and 10.4 per cent would be held as treasury stock while the public shareholders of Mahindra Satyam and Tech Mahindra would hold 34.4 per cent and 16.1 per cent respectively. Consequent on the announcement, Tech Mahindra will issue 10.34 crore new shares increasing its outstanding shares to 23.08 crore and its equity capital to Rs.230.80 crore. The revenue stream of the combined entity, to be headquartered in Mumbai, would be well balanced in that 42 per cent of the contribution would be from the Americas, 35 per cent from Europe and the remaining 23 per cent from the emerging markets. The combination would benefit from operational synergies with integration at various levels underway, economies of scale and standardisation of business processes. Announcing the merger at a press conference, Mahindra Satyam chairman and Tech Mahindra managing director Vineet Nayyar said the joint entity, whose name would be finalised soon, would encompass a unified “go to market” strategy leveraging the deep competencies and balanced revenue mix of the two entities in telecom, manufacturing, technology, banking, financial services & insurance, retail and healthcare. Replying to queries, he said the new entity foresaw zero redundancy of staff and there would, in fact, be net addition of headcount as “we progress on our growth trajectory”. Commenting on the merger Anand Mahindra, Chairman, Tech Mahindra said: “This merger will help propel the combined entity into the top tier of Indian software and services companies”. Mahindra Satyam CEO C.P. Gurnani said the management of the combined entity would continue contesting tax claims that were “not expected to be resolved soon”. “Merger of the two entities will provide a platform for growth to the next level. We will virtualise the two companies bringing connected devices, connectivity and network to the forefront,” he said adding the rules of the road would be defined in cases of overlap of customer base. After the merger news was announced Tech Mahindra closed at Rs.683.90, up by Rs.35.55 or 5.48 per cent while Satyam gained Rs.3.40 or 4.59 per cent to close at Rs.77.55 on the Bombay Stock Exchange.