How do analysts view Tech Mahindra-Satyam merger?
The merger of Tech Mahindra and Mahindra Satyam (Satyam Computer Services) is largely seen as a positive deal by analysts, considering that the combined entity will become sixth largest software services provider and will have a balanced revenue mix as it would client concentration.
March 23, 2012 / 08:21 IST
Moneycontrol Bureau
The merger of Tech Mahindra and Mahindra Satyam (Satyam Computer Services) is largely seen as a positive deal by analysts, considering that the combined entity will become sixth largest software services provider and will have a balanced revenue mix as it would lower client concentration. British Telecom's share of total revenue will now come down to about 18% from 35% and the overall telecom sector contribution will fall to 47% from 96%, thus reducing risks.Tech Mahindra and Mahindra Satyam's boards approved merger of the two firms on Wednesday. The combined entity will have revenue of USD 2.4 billion, 75,000 employees and 350 clients.The swap ratio for the merger of Mahindra Satyam with Tech Mahindra has been fixed at 8.5 shares of Satyam for every one share of Tech Mahindra.Mahindra Satyam shares were up over 4% at Rs 80.85 on NSE on Thursday in noon trade. Tech Mahindra also gained 4.2% at Rs 713.90.Here's how analysts view Tech Mahindra-Satyam merger:Edelweiss: We expect the combined entity to become a formidable competition in the scale player league with complementary skill sets and a well balanced revenue mix. MF Global: Investor concerns regarding the merger ratio have been allayed with the merger ratio being largely in tandem with the current market price. While we believe that the combined entity will benefit from synergies with respect to size and mix, it is too early to say whether it will result in superior growth rates in the near term. Rating: Neutral (Tech Mahindra).Motilal Oswal: The joint entity will have a unified 'go-to-market' strategy and a more diversified revenue footprint geographically. The combination will benefit from operational synergies, economies of scale, sourcing benefits, and standardization of business processes. Rating: Neutral (Tech Mahindra).Prabhudas Lilladher: We see improved ability of the merged entity to bid for the larger projects, but the crux would be a seamless integration of the entities and reaping the benefits. We see a daunting task for the management ahead, hence would wait before flagging a re-rating. Rating: Accumulate (Tech Mahindra). Sharekhan: We view the merger as a positive catalyst for creating a value accretive entity for the future. However, legal hurdles pending with Satyam and slowdown in the telecom vertical (main industry exposure for Tech Mahindra) would stand to be a roadblock in the medium term. On a longer-term, the new entity will have a more diversified and scalable revenue stream and operational synergies will create value for the investors.SPA Securities: The combined entity will have higher margins than the two companies due to operational efficiency gains, 5% reduction in fixed and G&A costs and improvement in Satyam margins, though partially offset by Tech Mahindra in the short term.
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