BT Group on way out from Tech Mahindra

In a forerunner to the impending departure of the British telecommunications company BT Group Plc from Tech Mahindra, two directors of the Indian firm’s board relinquished their posts on Friday. On late Friday, Tech Mahindra, the IT arm of Mahindra & Mahindra (M&M), has notified Indian stock exchanges that two directors nominated by BT Group – Nigel Stagg and Richard Cameron have quit the company’s board with immediate effect.

Previously known as British Telecommunications, BT Group Plc holds just in excess of 23 per cent equity in the Indian IT services firm and is also it largest customer - providing 37 per cent revenue.

A recent website report quotes the head of London-based BT corporate media relations Dan Thomas as saying that the resignation of the directors nominated by them is an accepted measure in the gradual withdrawal of BT from being an investor of Tech Mahindra. Thomas further said that the resignation of their nominated directors should not surprise anyone, since the markets were conscious of their decision to exit.

When the price of each Tech Mahindra share closed at Rs 570.29, the company’s market valuation was Rs 7,259 crore on the Bombay Stock Exchange (BDE). Accordingly, the equity holding of BT in the company was to the tune of Rs 1,686 crore.

Previously, in December 2010, the BT has sold 5.5 per cent in Tech Mahindra in exchange of Rs 451 crore, precisely speaking, to M&M, which had subsequently given up its claim of first refusal, thereby giving BT the liberty to put them up for sale in the open market. A recent report in The Times of India had claimed that private equity (PE) firms Advent International and Carlyle Group were negotiating with BT to purchase its equity in Tech Mahindra.

According to Vineet Nayyar, vice-chairman of Tech Mahindra, BT is of the view that it possibly will not be beneficial to remain continue with its investment in a technology provider that is also a vendor of the company. Nayyar said that the current investment of BT in Tech Mahindra has a historical background, hinting that BT has point out that they will depart in a methodical way that may take anything between some months and a year.

Meanwhile, Tech Mahindra is preparing to merge with Mahindra Satyam, the Hyderabad-based software services company it had taken over in April 2009. The two firms will soon hire merchant bankers for the purpose. It may be noted that initially Tech Mahindra commenced operations by providing offshore services to British Telecom and was then called Mahindra British Telecom, until the company amended its name in 2006 before going public in the same year.

It may be noted that during the past few quarters, the contribution of BT to the revenues of Tech Mahindra has been declining over and over again and several work done by Tech Mahindra for BT are presently being re-tendered. This was acknowledged by Tech Mahindra while declaring the financial results of the company during the September quarter.

Despite all these, Nayyar is hopeful of remaining the biggest technology service provider for BT and even the British telecommunications giant has said that it is eager to maintain the business ties with Tech Mahindra. According to Thomas of BT, their relationship with Tech Mahindra and its parent company Mahindra & Mahindra has been developing – transforming from collaboration into a genuine standalone business relationship.