Tata Consultancy Services is set to acquire Citi's interest in Citigroup Global Services, its business process outsourcing arm in India, for approximately $505 million (£290 million).
The news comes five months after Citi promised to eliminate £1.5 billion worth of IT costs in a major overhaul. In separate news earlier this week, Japanese bank Nomura said it was buying Lehman’s Indian IT operations, having acquired the investment and equity units of the investment bank a fortnight earlier.
Under Citi’s agreement with TCS, the Indian IT services firm will provide $2.5 billion (£1.4 billion) worth of services through Citigroup Global Services to Citigroup and its affiliates over the next 9 years. The transaction is expected to close in the fourth quarter of this year.
Citigroup Global Services has more than 12,000 employees in India, and is expecting revenue of $278 million (£159 million) this year.
TCS already provides BPO, IT and related services to Citigroup.
A number of multinational companies like Aviva and General Electric have hived off their back office subsidiaries to focus on their core business. Running subsidiary BPO and IT services operations in India is far more costly and cumbersome than outsourcing to local outsourcing companies, according to research by Forrester Research and other analyst firms.
The acquisition of Citgroup Global Services will however increase the exposure of TCS to the global financial services industry, which is seeing a shakeout. TCS earned 43 percent of its revenue in the second quarter from the banking, insurance, and financial services sector.
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