iGATE Corporation on Monday formally announced the buying of 63 per cent equity from the promoters of Mumbai-based Patni Computer Systems at a consideration of $1.22 billion, including 20 per cent open offer worth $301 million.
Billed as one of the largest acquisitions in the information technology industry, i-GATE, along with Apax Partners, purchased 45.6 per cent equity held by Patni brothers — Narendra, Gajendra and Ashok — and 17.4 per cent stake held by General Atlantic at a price of Rs.503.50 a share, costing $921 million.
The $1.22-billion deal would be funded by a combination of cash, debt and equity financing, including a potential public offering of 10 million shares. A debt of $700 millions had been raised from Royal Bank of Canada and Jefferies and Co.
Announcing the deal at a press conference here, iGATE Chief Executive Officer Phaneesh Murthy said an open offer to public shareholders would be made to purchase an additional 20 per cent equity at a cost of $301 million. The mandatory regulatory approvals were expected to take a few weeks, he added.
“We will issue equity worth $270- 480 million to Apax Partners based on the pick-up in the open offer and Apax will get one member on the iGATE board while iGATE will get two members on the Patni board.”
He also clarified that no ‘non-compete fee' was being paid and that they wanted Patni to compete and win deals. “We believe the deal is of extreme strategic value, giving us the biggest platform, which will allow us to participate in large bids,” he said while acknowledging that it would be a ‘complex integration' process.
According to Mr. Murthy, Patni Computers would continue to be listed in India for a “significant period beyond the first half of 2010,” and that a decision to delist Patni had not been taken as yet. He, however, said they preferred the listing of iGATE in the U.S.
He said “we would like to keep the two brands together for the short to medium term, which could be longer than a year.”
Mr. Murthy said that leadership teams from both companies would sit together in the next few weeks and work out the future strategy.
On fears about loss of clients following the deal, he said both companies had excellent delivery record and the deal was quite complementary in the client side. He hoped that GE, one of the biggest clients for both, would be supportive.
The combined company would have two $100-million clients, two $50-million clients and 36 $5-million clients.
The combined company would be a key player across banking, financial services, insurance, manufacturing, retail, media and entertainment.
With this deal, the combined headcount of Patni and iGATE would go up to 24,834 as on September 30, 2010. According to Mr. Murthy, the employees would benefit and said: “We would want people to stay with us. The leadership teams will try to evolve role for everybody. But some roles many not be evolved.”
PTI reports from Mumbai:
Shares of Patni Computer Systems lost their initial momentum to end with just 0.82 per cent gain on the Bombay Stock Exchange on Monday after the deal.
Patni settled the day at Rs.463.85. During the day, the shares gained 3.84 per cent to touch an intra-day high of Rs.477.80.
On the National Stock Exchange, it settled at Rs.464.15, up 0.81 per cent.
“The Rs.503 a share pricing is good for the Indian IT major. Moreover, the deal is more valuable for iGATE,” Networth Stock Broking Head of Institutional Business Prakash Diwan said.