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Tech Mahindra and Mahindra Satyam merger announced

Zafar Anjum | March 21, 2012
The merger will result in the creation of a new offshore services leader with approximately US$2.4bn in revenues, more than 75,000 employees and over 350 active clients across 54 countries.

The long-predicted merger of Indian IT services providers Tech Mahindra and Mahindra Satyam has finally happened.

The two companies formally became one after the boards of directors of Tech Mahindra and Satyam Computer Services, in their respective meetings held today, approved a proposal to merge the two entities. This merger, of course, is subject to government approval.

The merger will result in the creation of a new offshore services leader with about US$2.4 billion in revenues, more than 75,000 employees and over 350 active clients (including Fortune Global 500 companies), across 54 countries.

"This merger will help propel the combined entity into the top tier of Indian software and services companies, achieving the Group's key objective of being in a leadership role in each of our focus business areas," said Anand Mahindra, chairman, Tech Mahindra.

"The Mahindra Satyam turnaround is a shining story of determination and grit and now comes to its most important chapter, with this merger," said C.P. Gurnani, whole-time director and CEO of Mahindra Satyam. "As enterprises the world over look to bolster their IT strategies to keep pace in the connected world, this merged entity will provide the perfect blend of capability to address this evolving market," he added.

True to the prediction that many had made after Satyam was acquired by Tech Mahindra in April 2009 (post- Ramalinga Raju scandal), the merger of the two companies had to be the end game.

Post-acquisition, there were doubts about the company's viability. But within two years, the new leadership at Mahindra Satyam had turned the company around.

Key highlights of the merger

According to Mahindra Satyam sources, the exchange ratio recommended by the valuers and approved by both the boards is two shares of Tech Mahindra (face value of Rs. 10 each or US$0.19), for every 17 shares of Mahindra Satyam (face value of Rs. 2 each). On a pro-forma basis, the Mahindra Group will own 26.3 per cent in the combined entity, British Telecom will own 12.8 per cent, 10.4 per cent will be held as treasury stock, 34.4 per cent to be held by the public shareholders of Mahindra Satyam and the balance 16.1 per cent will be held by the public shareholders of Tech Mahindra.

Tech Mahindra said it will issue 10.34 crore (100.34 million) new shares, thereby increasing its outstanding shares to 23.08 crore and its equity capital to Rs 230.8 crore (US$4.5 billion).

The joint entity will have a unified "go-to-market‟ strategy with deep competencies and a balanced mix of revenues from Telecom, Manufacturing, Technology, Media & Entertainment, Banking Financial Services and Insurance, Retail and Healthcare.

The combination of the two companies will benefit from operational synergies, economies of scale, sourcing benefits, and standardisation of business processes, according to a statement from both companies.

 

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