Mumbai: The diversified Mahindra Group on Wednesday announced the long-awaited merger of Mahindra Satyam with its another technology arm Tech Mahindra in an all-share deal that would create the country's fifth largest software firm with an estimated annual revenue of about $ 2.4 billion.
Under the deal, which was cheered by investors of both the companies in the stock market on Wednesday, would involve the shareholders getting two shares of Tech Mahindra for every 17 shares held in Mahindra Satyam.
The merger, to become effective retrospectively from April 2011, would create a single IT entity with an estimated market value of over $ 3.5 billion, revenue of about $ 2.4 billion and a combined workforce of over 75,000 employees.
The deal also marks the completion of a turnaround story of once scam-hit Satyam Computer, which was rechristened as Mahindra Satyam after being acquired by Anand Mahindra-led group, and would propel the combined entity to the top league of Indian IT firms, such as TCS, Infosys, Wipro and HCL Tech.
The analysts said that the merged entity was likely to become India's fifth largest software firm in terms of revenue as well as market value.
The shareholders of both the companies welcomed the merger, pushing share prices of Mahindra Satyam as well as Tech Mahindra higher by 4.6 per cent and 5.5 per cent, respectively. At the end of Wednesday's trade, Tech Mahindra commanded a market value of Rs 8,712 crore, while that of Mahindra Satyam was Rs 9,126 crore.
Tech Mahindra shares closed at Rs 683.90 at the BSE, while Mahindra Satyam settled at Rs 77.55. Commenting on the merger, group chief Anand Mahindra
wrote on the social networking site Twitter: "We now begin to write the next chapter."
Destimoney Securities' MD and CEO Sudip Bandyopadhyay said merger is the culmination of successful transformation of the scam-hit Satyam into a part of well-managed Mahindra group.
"Significant duplication of corporate functions can be done away with through this merger apart from synergising sales and operations. Successful integration will result in significant benefit for the merged company enabling it to break into the top tier of Indian IT companies," he said.
Mahindras had acquired erstwhile Satyam through a government-run auction way back in April 2009, within months of a major corporate scam came to the light at the company that was known as India's fourth largest IT firm at that time.
In a startling revelation of the country's largest ever corporate fraud, Satyam Computer's founder and then Chairman B Ramalinga Raju had disclosed in January 2009 having overstated the company's profits and falsified its assets.
The merger, which also involves amalgamation of certain other subsidiaries with the combined entity, was approved by the boards of Hyderabad-based Mahindra Satyam and Mumbai-headquartered Tech Mahindra this morning. The amalgamated entity would have its headquarters in Mumbai.
After the board meetings, Tech Mahindra vice-chairman and Mahindra Satyam's Chairman Vineet Nayyar told reporters in Mumbai that Mahindra Satyam has achieved all the targets set for itself and it was appropriate to start the merger process.
The full integration process would take another nine months, Nayyar said, while adding that both the companies will have separate AGMs for this fiscal.
Nayyar further said the new management structure is not finalized and a revamp of existing management is on the anvil.
Post the merger, Mahindra group would own 26.3 per cent in the combined entity, British Telecom (currently a shareholder in Tech Mahindra) would have 12.8 per cent, 10.4 per cent would be held as treasury stock, 34.4 per cent will be owned by public shareholders of Mahindra Satyam and the remaining 16.1 per cent by public shareholders of Tech Mahindra.