How will MphasiS benefit from HP-EDS deal?

Raja Rajeshwari, CNBC-TV18

Big news for the IT space besides the rupee is the HP-EDS deal and what happens to MphasiS after that, where EDS holds majority stake. What will also mean to the stock holders?

As the Electronic Data Systems and Hewlett Packard management also pointed out, MphasiS will be the main stay in their Indian operations and there may be more business coming around to India. Quantifying it - currently MphasiS just has an order book of USD 1 billion from EDS. That is likely to increase given that the IT services business of EDS and HP put together will be close to USD 40 billion, going with a presentation they made yesterday.

But one important thing that will be decided is whether it's going to keep the HP India and MphasiS separate because if there is a merger then the work will flow wholly into the combined entity and if there is no merger then there will be a cost versus benefit analysis of whether it is best done by HP India or by MphasiS.

If this comes to such a situation then our talk with most of the analysts’ points out that HP India has been able to grab some of the Information Technology Outsourcing (ITO) total outsourcing deal better than what MphasiS has done. MphasiS has lost some of the deals that could have come through. So, some of the outsourcing work may go to HP India itself.

Where MphasiS will get the ground is the BPO competence that it will bring on the table. The best move forward would be a merger between all because HP will not try and keep too many subsidiaries in India, they will try and consolidate the operations.

Also there have been talks of an open offer. Right now the opinion is that there may not be mandatory open offer. But given that there are no listed subsidiaries of HP all around the world there could be a remote possibility, sometime in the future, of a delisting; if that happens then how does one play the stock?

Retrospectively, from 2002 onwards, looking at various delistings that have happened especially in the IT space, the one that stands out is the Digital Global deal also done by HP India. HP had come in and delisted post the merger with Compaq. Fraught with controversies, before the delisting they had gone for a merger between HP and the existing Indian counterpart with that of Digital Global Soft and then did the delisting there. The price was fixed at Rs 750, which was a 50% premium to the SEBI floor price but the reverse book building discovered price came to Rs 850 and that was the exit price that Digital Global Soft had given.

I-Gate which delisted in January, even though the price was set around Rs 289, they delisted at a higher price of Rs 410. In the case of Flextronics the floor price was of Rs 575 and they had to go and delist at Rs 725. So all this will be through the reverse book building and that is what one needs to watch out for.