Indian outsourcer Tech Mahindra to swallow Satyam

[March 21, 2012]  MUMBAI, India (AP) -- India's Tech Mahindra said Wednesday it will take full ownership of its Satyam subsidiary, creating India's fifth largest outsourcing company.

Satyam Computer Services nearly collapsed in one of the largest frauds in Indian corporate history in 2009.

Three months after Satyam founder Ramalinga Raju confessed to inflating company assets by $1.5 billion, Tech Mahindra bought a controlling stake in the company and renamed it Mahindra Satyam.

The boards approved the long-anticipated deal Wednesday. The enlarged company will have revenue of $2.4 billion and over 75,000 employees serving 350 clients in 54 countries.

Investors will get two shares of Tech Mahindra for every 17 shares of Mahindra Satyam.

"The Mahindra Satyam turnaround is a shining story of determination and grit and now comes to its most important chapter, with this merger," Mahindra Satyam chief executive C.P. Gurnani said in a statement.

Tech Mahindra is owned by India's Mahindra & Mahindra Ltd. and British Telecommunications. The Mahindra Group will own 26.3 percent in the combined entity and British Telecom will own 12.8 percent.

The takeover requires shareholder and regulatory approval.

IIFL Capital analyst Sandeep Muthangi said the takeover would result in cost savings and better competitiveness.

"It's favorable for both companies," he said, adding that India's IT sector will likely see more consolidation in the future.

Shares in Tech Mahindra were up 3.7 percent and shares in Satyam were up 4.7 percent in midafternoon trade in Mumbai, beating the benchmark Sensex index's 1.2 percent rise.

[Associated Press; ERIKA KINETZ]

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