Mumbai, Oct. 8: Tata Consultancy Services (TCS) today announced the buyout of Citigroup’s business process outsourcing arm for $505 million (Rs 2,424 crore) in an all-cash deal.

TCS will acquire a 96.26 per cent stake in Citigroup Global Services.

Citigroup Global initially started offering back-office services to Citi India and now serves the financial giant’s global operations across its consumer, corporate and global wealth management businesses.

The unit has more than 12,000 employees in India and is expected to generate revenues of around $280 million in this calendar year.

Citigroup has also signed a $2.5-billion deal with TCS under which the latter will provide process outsourcing services to Citi and its affiliates over nine-and-a-half-years. This will be provided through Citigroup Global Services.

The acquisition will see TCS emerging as the country’s second largest BPO as it broadens its portfolio of end-to-end IT and BPO services in the global banking and financial services sector.

S. Ramadorai, chief executive officer and managing director of TCS, said Citigroup would now rank among its top five customers.

He said TCS would leverage Citigroup Global’s capability in the banking and financial services segment. The acquisition will also help TCS offer third-party BPO services.

“This transaction will complement our domain expertise and bring new capabilities to TCS that will help drive growth,” he said.

Citigroup Global Services currently provides services in transaction processing, customer services, collections and risk management.

N. Chandrasekaran, chief operating officer and managing director of TCS, said the deal was expected to be sealed this quarter.

The unit will start contributing to TCS revenue in the last quarter of this fiscal. He said around $275-300 million will flow into the topline of TCS annually on account of the $2.5-billion deal.

Citigroup Global Services has reported consistent improvement in its revenues with a compounded annual growth rate of 27 per cent. “We will be a one-stop-shop with integrated IT-BPO offerings,” Chandrasekaran said.

On the Bombay Stock Exchange, the acquisition failed to lift TCS shares on a day when the benchmark index recovered most of its losses. The share closed 5 per cent lower at Rs 456.60 with analysts saying the deal was expensive. However, Chandrasekaran said the price paid was “quite attractive”.

Don Callahan, chief administrative officer of Citi, said, “TCS will offer Citigroup Global stronger growth potential and superior services. This transaction is expected to help reduce operating expenses related to business processing and will allow us to focus on our core financial services competencies.”

It is understood that other BPO majors in the country were also in the fray to acquire Citigroup Global.

Domestic IT companies are now opting for the inorganic route to expansion. Both HCL Technologies and Infosys Technologies are vying for UK-based Axon, a SAP consulting company. HCL made a higher cash offer of 650 pence per share for Axon against 600 pence apiece offered by Infosys.