Tata Consultancy Services (TCS), on Monday, announced that it signed definitive agreements with Mitsubishi Corporation (MC) to merge its subsidiary TCS Japan with MC’s 100 per cent IT subsidiary IT Frontier Corporation (ITF) and Nippon TCS Solution Centre to create a new single entity.
While TCS will hold 51 per cent stake in the entity, Mitsubishi will hold 49 per cent. The entity will be operational from July, 2014.
Local presenceAddressing media, N.Chandrasekaran, CEO & MD, TCS, said, “we have been saying that Japan is a strategic market for TCS and have been trying to strengthen it for some time. Now, TCS will now have the scale, strong local presence, and full range of global capabilities to serve the Japanese companies effectively and accelerate our growth there.”
Japan is the world’s second largest IT services market. TCS Japan’s revenues are around $100 million, and it set up a 60:40 partnership with Mitsubishi for an onsite development centre two years ago. “That was a way of engaging and starting to work together and this is a well-thought out strategic move.”
The transaction values the combined entity at $300 million, and the total revenue of the combined entity will be around $600 million.
Equity plus cashThe merger will be an equity-plus cash transaction wherein a subsidiary of TCS will buy shares from MC for about $50 million to have a controlling 51 per cent stake. TCS has the option to increase its stake to 66 per cent initially and further later. The entity will have 2,400 professionals from ITF and TCS and also business associates from ITF.
For TCS, the CEO said, “it means our Japan operations go from $100 million to $600 million.” Revenues will accrue from July this fiscal, provided the deal closes and will be $300 million.”
Client accessCurrently, Mitsubishi contributes about half of ITF’s total revenues of about $500 million. “Besides MC, we will get access to several clients in the $5-50 million category,” Mr. Chandrasekaran said, adding, that these were in verticals such as manufacturing, high-tech, financial services and retail. “In Japan, we see huge opportunities for our global network delivery model, infrastructure optimization, business process outsourcing and digital.”
On the BSE, TCS moved up 0.14 per cent to close trading at Rs. 2,220.5.
