 |
Mumbai, Jan. 10: US-based iGate today finally clinched the deal to acquire a controlling 63 per cent stake in Patni Computer Systems — the country’s seventh largest IT service firm — at a price of Rs 503.50 per share.
The deal capped months of speculation over the transaction and broke a last-minute gridlock that had held up the announcement by a week.
The transaction is valued at $1.22 billion, including the cost of an open offer that iGate will have to make to Patni’s minority shareholders.
iGate will get a 45.6 per cent stake from the founders of Patni — Narendra Patni and his brothers Gajendra and Ashok. Another 17.4 per cent will come from private equity firm General Atlantic for a consideration of $921 million.
The open offer for an additional 20.6 per cent will cost another $301 million. The transaction is likely to be completed in the first half of this year.
The top management of iGate today said it had no immediate plans to delist Patni. A reverse merger between the two entities might be evaluated at a later stage.
In an investor presentation filed with the US market regulator Securities and Exchange Commission (SEC), iGate president and CEO Phaneesh Murthy said the combined revenues of the two entities would be close to $1 billion with over 24,000 employees.
He said the deal would lead to the creation of a tier-1 player with end-to-end capabilities and broad vertical mix that would enable it to pre-qualify for large client engagements. There is also an opportunity for improved financial performance because of economies of scale.
Financing terms
The deal will be financed using internal accruals and a mix of debt and equity.
Debt financing of up to $700 million will come from Jefferies & Company Inc and RBC Capital Markets.
Viscaria Ltd, a company backed by funds advised by Apax Partners, will make an investment in iGate to facilitate the acquisition of a majority stake in Patni.
Moreover, iGate has agreed to sell to Viscaria Ltd $270 million of preferred stock (preference shares) convertible into common stock at a price of $20.30 per share. The preferred stock will carry a dividend rate of 8 per cent per annum.
The preferred stock investment by Viscaria may be increased by up to an additional $210 million based on the subscription in the open offer process. The rest of the funds will come from cash on iGate’s books.
Viscaria is entitled to one board seat in iGate. It will get two seats if the board has more than 10 members.
While a deal between the two has been in the works for a few weeks now, iGate clarified that it would not be paying any non-compete fee to the founders of Patni.
The price of Rs 503.50 per share disappointed some observers who were expecting a price in the region of Rs 550 apiece. However, Patni shares reacted positively in a weak market as it ended marginally higher at Rs 463.85 after touching an intra-day high of Rs 477.80.
Infotech analysts expect the deal to be a win-win for both the companies though it may throw up some challenges in the immediate term. To begin with, the acquisition will catapult iGate into the billion-dollar league, thereby enabling the entity to bid for higher value deals.
For the year ended December 31, 2009, Patni posted revenues of nearly $656 million and iGate nearly $193 million.
Rohit Kumar Anand, analyst at PINC Research, told The Telegraph that the acquisition would give iGate access to other verticals such as manufacturing, retail and communications in which it was not strong. iGate has a good presence in banking and financial services.
Now that Patni had got a new management, it could look forward to better growth rates ahead, he said.
“Phaneesh Murthy is known to be an aggressive sales person. There is a scope for better growth in Patni,” he added.
Senior management of both the companies later said the immediate focus would be on framing a “go to market strategy”.
The seven founders of Infosys — the country’s second largest software exporter — once worked for Patni Computers. They left the organisation in the early 1980s to form Infosys.
