Outsourcer Satyam to merge with Tech Mahindra

More than three years after Indian outsourcer Satyam Computer Services was hit by a financial scandal, the company is being merged with Tech Mahindra, a key investor in the company after the crisis.

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More than three years after Indian outsourcer Satyam Computer Services was hit by a financial scandal, the company is being merged with Tech Mahindra, a key investor in the company after the crisis.

Tech Mahindra stated in a filing to the Bombay Stock Exchange that its board has approved the amalgamation of its subsidiaries with the company, including wholly-owned unit Venturbay Consultants which acquired a 43 percent stake in Satyam in 2009.

The aim of the two companies is to create a larger IT powerhouse that will be better able to compete with larger Indian outsourcers like Tata Consultancy Services, Infosys and Wipro. The merger will result in the creation of a new offshore services leader with revenue of approximately $2.4 billion (£1.5 billion) in revenue, over 75,000 workers and over 350 active clients, Tech Mahindra and Satyam said.

The companies will benefit from the merger through operational efficiency, which they are already seeing in their shared sales, marketing and support functions, said Sudin Apte, principal analyst and CEO of Offshore Insights. Tech Mahindra hopes to sell enterprise services from Satyam to its own clients in the telecommunications industry, but that may not play out, he added.

Tech Mahindra and Satyam informed the stock exchange on Tuesday that their boards were meeting the next day to consider the merger.

Satyam was plunged into a crisis in January, 2009 after its founder, B. Ramalinga Raju, said that the company's profits had been overstated for several years. It lost a number of clients as a result, and had to settle litigation and fraud charges including from the US Securities and Exchange Commission.

The Indian government moved quickly to appoint its own board at the company, to steer it through the crisis, restate the accounts, and also identify a strategic investor. The board announced in April of that year that Tech Mahindra, another Indian outsourcer, had emerged as the highest bidder for a stake in Satyam, and would acquire the stake through subsidiary Venturbay.

The company has since been on the mend. In the final quarter of last year, it reported that revenue grew 34 percent year-on-year to $315 million, while net profit was up 424 percent.

The opportunity ahead for the merged entity is to combine Satyam's expertise in enterprise services with Tech Mahindra's capability in networking and communications to deliver mobile, cloud, and SaaS (software as a service) services and technologies, Apte said.

The proposed merger is subject to court approvals, and clearances from shareholders, lenders and creditors.

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