|TCS chief executive N. Chandrasekaran (left) with
CFO Rajesh Gopinathan in Mumbai on Monday. (PTI)
Mumbai, April 21: TCS, the country’s largest software exporter, today announced the formation of a Japan-focused entity through the merger of its two Japanese arms with a 100 per cent subsidiary of Mitsubishi Corporation which expects to clock annual revenues of $600 million.
The merger of Tata Consultancy Services Japan Ltd (TCS) with IT Frontier Corporation and Nippon TCS Solution Center Ltd is expected to close by June. TCS will have a 51 per cent stake in the merged entity, while Mitsubishi Corporation will hold 49 per cent.
The two sides signed definitive agreements today. The cash-and-stock transaction values the new entity at $300 million.
A subsidiary of TCS will pay $50 million to acquire further shares from Mitsubishi Corporation to raise the stake to 51 per cent.
“This strategic transaction signifies our serious commitment to the Japanese market,” TCS’ chief executive officer and managing director N. Chandrasekaran said here today.
“TCS will now have the scale, strong local presence and our full range of global capabilities to serve the Japanese corporations effectively and accelerate our growth in the Japan market.”
The merger will create a strong IT services unit with a base of over 2,400 associates in Japan.
ITF has long-standing relationships with Japanese corporations and competencies in industries such as retail, distribution and trading.
TCS sources said ITF did not have any debt on its books.
TCS, the $13.4-billion company, has seen revenue growth in Europe in the past three years and has signalled its intention to focus on Asia even as the US— its core market — shows sign of recovery.
“In Asia, we said Japan was a critical market for us… We have been focusing on it for the last couple of years because the market has a huge potential,” Chandrasekaran had told analysts last week after the company announced its fourth quarter results.
Chandrasekaran appeared to have dropped a hint of today’s transaction at the analysts’ conference last week when he said: “Japan is a market that has been traditionally tough. TCS has overall scale to be able to spend more time and so we are building our clients in Japan, organically at this point of time…When there is an opportunity, we will definitely take inorganic options.”
Nobody caught that cue and the inorganic growth opportunity hove into the horizon just five days later.
TCS shares today ended flat on the BSE after touching a high of Rs 2,242 during the day. The scrip gained 0.14 per cent to end the day at Rs 2,220.50 on the BSE.
According to brokerage firm Motilal Oswal Securities, the deal is expected to add $375 million in incremental revenues of TCS.
“Japan is the second largest market for IT services and Indian players have struggled to gain a foothold in the region. In that regard, TCS’s move opens up the region favourably for the company — an additional source of revenue over the long term,” Motilal Oswal Securities analyst Ashish Chopra said.