Home >companies >news >Tech Mahindra completes merger with Satyam Computer

Hyderabad: Tech Mahindra Ltd, the information technology (IT) arm of Mahindra and Mahindra Ltd (M&M), has completed merging Satyam Computer Services Ltd with itself, creating the fifth largest IT company based in India, four years after acquiring the Hyderabad-based firm at a time it had appeared to be on the verge of collapse.

The new entity will retain the parent’s identity and be called Tech Mahindra. Anand Mahindra, chairman of M&M, will also be chairman of the combined entity. Vineet Nayyar and C.P. Gurnani, who nursed Satyam back to health after M&M bought it at an April 2009 auction, were named executive vice-chairman and managing director, respectively.

“Today we have fulfilled the commitment made in 2009, when we acquired Satyam, to jointly become one of the largest, diversified players leveraging technology for business solutions," Mahindra said in a statement to the stock exchanges on Tuesday. “Tech Mahindra is a testimony to the tireless efforts of our associates and the trust reposed by our investors. I’m confident that we are now geared to grow even faster in the future,"

Satyam Computer, established in 1987, was counted as the fourth largest Indian IT firm by revenue when, in January 2009, founder-chairman B. Ramalinga Raju confessed to having misstated the company’s earnings to the tune of 7,136 crore over several years by inflating revenue and underplaying liabilities. It triggered a flight of employees and client defections, leading to its sale at an auction overseen by government-appointed directors.

The new management rebranded it Mahindra Satyam, although the IT services provider continued trading on the stock exchanges as Satyam Computer.

The disappearance of the name Satyam from the brand identity is another step aimed at distancing the company from the 2009 scandal, which triggered India’s biggest corporate fraud investigation.

The new entity would be behind Tata Consultancy Services Ltd (TCS), Infosys Ltd, Wipro Ltd and HCL Technologies Ltd among Indian-headquartered IT companies by revenue. The list doesn’t include Cognizant Technology Corp., which is based in the US although it has most of its employees based in India.

In the financial year ended 31 March, Tech Mahindra had combined revenue of $2.67 billion ($1.41 billion Satyam + $1.26 billion Tech Mahindra) and a joint workforce of 83,565 people (36,067 Satyam + 47,498 Tech Mahindra).

The operational merger will help Tech Mahindra compete better with the bigger rivals for larger contracts, analysts said. Satyam has a more varied client mix than Tech Mahindra, which has been dependent on customers from the telecom sector such as BT Group Plc.

“It is a big positive," Ankita Somani, an analyst at Angel Broking Ltd, said about the merger. “They have a very good client base, and there is almost negligible overlapping in the clients of Mahindra Satyam and Tech Mahindra."

“Scalability of the company will now increase. They will now bid for large scale contracts," Somani said.

Apart from reviving Satyam Computer, which had a better business mix compared with its parent that depended heavily on telecom clients, the new management also had to battle litigation both in India and abroad.

The last of overseas litigations was settled in December last year. At home, the company is contesting a tax claim by the income tax department and a 822 crore Enforcement Directorate attachment order.

The completion of the merger, which was announced on 21 March last year, follows a legal battle with some unsecured creditors and a group of minority shareholders seeking to stall the union. The Andhra Pradesh high court endorsed the merger on 11 June, putting an end to the eight-month-long legal battle.

“Over the past four years, while we worked through the statutory and legal issues, our teams worked closely on the ground to integrate processes, eliminate overlaps, leverage best practices and deliver enhanced value to all our stakeholders," Nayyar said.

“Today, as we formally become one, our unified go-to-market strategy will allow us to meet the growing needs of businesses with renewed vigour and proactiveness."

Shares of Satyam Computer rose 1.1% to 116 and Tech Mahindra gained 1% to 1,009.70 on Tuesday on the BSE on a day the exchange’s benchmark Sensex advanced 0.5% to 18,629.15 points.

In its judgement, the high court said all debts, liabilities, duties and obligations of Satyam following the acquisition will be the responsibility of Tech Mahindra, with effect from the appointed date of merger.

Satyam Computer shareholders will get two shares of Tech Mahindra for every 17 shares held by them, according to the scheme of amalgamation approved by the boards of the two firms. The merger scheme would be effective from April 2011 as per the terms of the agreement.

Gurnani, who was also the chief executive officer of Mahindra Satyam, has set a $5 billion revenue target for the combined entity by the end of 2015.

Industry leader TCS earned $11.6 billion of revenue during FY13 and has 276,196 employees on its rolls. Infosys had $7.39 billion in revenue and a headcount of 156,688 employees. Bangalore-based Wipro Ltd’s IT services revenue was $6.21 billion with a headcount of 145,812 employees.

HCL Technologies Ltd, which follows a July-June financial year, reported $4.5 billion of revenue for the 12 months ended 31 March with an employee base of 84,403. Nasdaq-listed Cognizant earned $7.34 billion for the year ended 31 December 2012 with employee strength at 156,700.

On Tech Mahindra’s investment plans after the merger, chief marketing officer and global head (business consulting) T. Hari said it had been investing in platforms to make it more competitive.

“We can go for acquisition this year too, but it should enhance our competitiveness and services potential and at the same time create a niche service portfolio," Hari said.

PTI contributed to this story.

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