Tech Mahindra, Mahindra Satyam merger imminent

Tech Mahindra and Mahindra Satyam, both tech firms managed by the Mahindra & Mahindra Group, will soon appoint merchant bankers as well as accounting firms to evaluate the two enterprises for a future merger.

A recent website report quotes two senior officials of these businesses having direct information regarding the development as saying that a potential merger will facilitate the information technology business of the M&M group to emerge as the sixth largest software exporter from India after Tata Consultancy Services (TCS), Infosys Technologies, Cognizant, Wipro plus HCL Technologies. Together, the two businesses are likely to have revenues worth $2 billion.

According to the report, the merger plan is seen as another landmark in the vision of group chairman Anand Mahindra to branch out his business group from a limited to producing multi-utility vehicles (MUV) and tractors to, what he likes to call it, a ‘federation’ of firms with experience of technology outsourcing, hospitality as well as real estate services.

The accountants commissioned for the merger procedure will complete an appraisal, while the merchant bankers will assist in preparing an estimate of the share appreciation of the two companies to decide on the share exchange ratio for the companies enrolled on the different Indian stock exchanges.

According to C P Gurnani, Mahindra Satyam CEO, they are appointing merchant bankers now, adding that an unprejudiced appraisal would be done by two major, reputed accounting firms, while the share assessment would be done by two globally reputed investment bankers. Meanwhile, Tech Mahindra chief financial officer Sonjoy Anand said that they are currently the closing stages of hiring both.

It may be noted that vis-à-vis market capitalization, Mahindra Satyam and Tech Mahindra nearly have a comparable valuation, including Tech Mahindra holding just more than 43 per cent in Mahindra Satyam via Venturbay Consultants.

However, it is believed that the merger process is unlikely to be an obstacle-free affair because two impending complications might result in a material after-effect on the appraisal. While one of these hurdles is an income tax claim lawsuit worth approximately Rs. 2,500 crore, the other is related to an assertion of about Rs. 1,200 crore from the companies closely held by the extended family of former Satyam Computers chief Ramalingam Raju. These companies assert that they had lent money to Satyam prior to the unearthing of the fraud at the company.

Talking to the website, Anand Mahindra said that these issues are still pending and now the assessors will take a decision on how to deal with them when they try to arrive at an unbiased appraisal. In addition, the proposed merger is also likely to cut short the exposure of Tech Mahindra to British Telecom, vital client and shareholder of the company. It is interesting to note that even as Mahindra Satyam is on the path of recovery, appending Fortune 500 clients to its profile, Tech Mahindra has been lagging behind by decreasing its volume of business from it main client BT Group plc.