Mahindra Satyam's merger with Tech Mahindra next year

HYDERABAD: Mahindra Satyam's merger with parent firm Tech Mahindra will take place next year, its chairman Vineet Nayyar said Thursday. "It is a process. We are looking at it when to commence it and we are hoping that by the next year, some time in later half of the year, this amalgamation will in fact take place," he told reporters while declaring Q2 results of Mahindra Satyam. Nayyar recalled that after winning the bid for the company in April 2009, Tech Mahindra had indicated its intention to merge. "That intention remains," he said.

In May this year, he hinted that the merger may be delayed as it is a legal process which has to go to two high courts. Tech Mahindra had acquired Satyam Computer Services Limited in April 2009, a few months after Satyam was rattled by India's biggest corporate fraud. Satyam was subsequently re-named Mahindra Satyam. To another query, Nayyar said the firm had resolved almost all cases in the US, which arose because of the fraud committed by the earlier management. The company has already paid $10 million to settle the US Securities and Exchange Commission's suit over the fraud. It paid $125 million to settle class action suits and another $70 million to settle the Upaid case. On the Income Tax department's notice to pay Rs.616 crore tax, Mahindra Satyam ceo CP Gurnani said the demand on fictitious income was unreasonable. "That is the reason we have choosen to go to court and are seeking justice," he said. The Mahindra Group company had earlier said that on the one hand, the government agencies were prosecuting former Satyam chief B. Ramalinga Raju for showing fictitious income, but on the other, making the same fictitious income a basis for demanding taxes.

Mahindra Satyam: New verticals, better margins put company back on growth track
Improved operating metrics over the past few quarters indicate that Mahindra Satyam (MSat) could enjoy heightened investor confidence. However, the company remains cautious given the faltering economic growth, especially in the West. Mahindra Satyam has been delivering reasonable growth over the past few quarters. The top line has grown at a compounded quarterly growth rate of nearly 7% since the first reported quarter after the Satyam crisis (September 2009), backed by volume traction. The December 2011 quarter, however, witnessed a slight drop of 1.3% in volumes due to seasonality and delays in discretionary spends, which form over 40% of the company's overall revenues. However, the software company expects to clock better growth due to traction in the enterprise software business, which is likely to grow 6.4% in 2012, according to Gartner. Besides, the BFSI vertical has shown an uptick for MSat during the quarter, unlike in the case of its peers, where it has seen a slump. BFSI is expected to fare well for MSat in the future as well. Emerging verticals of retail, healthcare and life sciences are also expected to drive growth. Aided by an 11% depreciation in the Rupee against the dollar during the December 2011 quarter, Mahindra Satyam witnessed a 9% sequential growth in its top line at Rs 1,718 crore and a nearly 30% surge in its bottom line at Rs 308 crore. The company's operating profit margin, despite wage hikes, improved by 90 basis points to 16.2%. This is an over ten percentage point improvement over the September 2009 quarter. Margins are expected to improve further on the back of better utilisation, lowered onsite revenue share and improved employee metrics. Currently, onshore contributes over 50% of Mahindra Satyam's revenues, implying higher costs. While freshers constitute 45% of the total employee base at its peers, only 28% of employees have less than three years of experience at the company. Although the number has improved from 21% in FY11, a further improvement is likely to boost the software company's overall margins. At Rs 69, the stock now trades at 18 times its earnings for the trailing twelve months. With the major

legal issues relating to the crisis resolved, MSat's expected merger with the parent Tech Mahindra is likely benefit the combined entity. However, delays in inking new deals can act as a strong headwind going ahead.

Tech Mahindra - Mahindra Satyam name JP Morgan, Morgan Stanley as bankers for merger process
MUMBAI: Tech Mahindra & Mahindra Satyam came a step closer to their merger with the appointment of JP Morgan and Morgan Stanley as the bankers to provide a fairness opinion. The fairness opinion is given after the valuation exercise is completed, and accounting firms or a Category I merchant banker can recommend a share-swap ratio for the merger of the two listed firms. Tech Mahindra acquired the scam-hit Satyam Computer Services in 2009 and re-branded it as Mahindra Satyam with the eventual goal of merging the two firms. Two people independently confirmed the appointment to ET. The bankers will review the valuation and give their opinion on its fairness, after which the proposal will be submitted to the boards of Tech Mahindra and Mahindra Satyam for approval. The management wants to complete the merger by the end of the year. A Tech Mahindra spokesperson said the company will not like to comment. Tech Mahindra and Mahindra Satyam are already working together in areas such as marketing and have senior leadership providing guidance across companies. Some shareholders of Mahi-Satyam are opposing the merger proposal because they feel a merger at this juncture will not capture the full potential of Mahindra Satyam and its valuations can improve further. The management has assured shareholders that the valuation process will be fair and independent.

On Thursday, shares of Satyam Computer closed at 68.65 giving it a market capitalisation of 8,078 crore, higher than Tech Mahindra's 7,646 crore, which closed at 600.20. Valuing Mahindra Satyam could have more than the normal share of challenges because of the various legal issues and liabilities the company is still facing, and which are not easy to quantify. Last week, for instance, the Andhra Pradesh high court stayed a provisional order by the Income-Tax department attaching all its land and properties. Some of the income-tax claims are made on the basis of the income and foreign tax credits the erstwhile Satyam declared. Also, while Mahindra Satyam has settled most of the major lawsuits against it - a class action suit brought against it by US shareholders for $1 billion and another by UK firm Upaid - there are others such as the class action claim led by the Aberdeen group that are pending. Also some closely held companies owned by relatives of the erstwhile promoter, Ramalinga Raju have alleged the Satyam owes them 1,200 crore. Mah-Satyam, in turn, is suing Ramalinga Raju and the previous board seeking damages of over 200 crore for loss of money and reputation.