Mumbai, April 3: EDS, the Plano (Texas)-based technology services company, is planning to snap up a 52 per cent stake in MphasiS BFL for $380 million.
EDS, which is the second largest company in the technology services space after IBM, has made a conditional offer to buy out Barings Equity Partner’s 34.9 per cent, MphasiS Holding’s stake of 4.62 per cent and possibly MphasiS BFL chairman Jaithirth Rao’s stake of 3.98 per cent at a price of Rs 204 per share.
But the deal will be done only if EDS is able to acquire another 9 per cent from an open offer which is mandatory under the takeover norms of the Securities and Exchange Board of India (Sebi).
In a press release issued today, EDS said its offer price represented an almost 30 per cent premium to the 26-week average price of MphasiS. The MphasiS share has been actually moving up in the past few days and was traded at Rs 215.80 at the end of Monday’s trading. If this price holds in the current bull market, EDS will find it hard to find takers for its open offer.
According to a company release, the offer will be contingent upon EDS acquiring 83 million shares, representing approximately 52 per cent of current shares outstanding. If at least 83 million shares are not tendered in the offer, EDS will not accept any shares tendered. EDS expects this transaction to be completed early in the third quarter.
If EDS pulls off the deal, it will be the second largest acquisition in the history of India’s infotech industry.
EDS had been in negotiations with MphasiS to buy out Baring Private Equity’s stake in the company since May-June 2005. Baring had earlier tried to sell off MphasiS’s stake to buyers like Temasek, Carlyle, Hinduja TMT and CapGemini, but negotiations had fallen through.
EDS has clearly driven a hard bargain. The deal size is much smaller than what had been speculated in the market.
The Texas-based technology service company has been looking to strengthen its base in India ' and this has become imperative after it recently won a multi-billion-dollar deal from General Motors. A strong base in India will give it the cost efficiency it doesn’t possess at the moment.
It is estimated to earn close to $1.2 billion a year from the majority share of the five-year General Motors (GM) systems integration services contract. EDS has recently won approximately 70 per cent of the contracts it pursued, worth $3.8 billion over five years.
With close rival IBM already having picked up Daksh, MphasiS with its business process outsourcing outfit Msource will give EDS just the cutting edge that it needs.
The Rs 93.6 crore Msource has facilities in Bangalore, Pune and Tijuana in Mexico. It employs nearly 3,000 people. As part of its expansion plans, Msource plans to add 2,000 people by the end of this fiscal and also acquire four to five new clients. MphasiS currently has more than 12,000 employees, including 11,000 in India.