Putting to rest all speculations, iGate has finally decided to acquire majority stake in Patni Computers. Expected to be completed by the first half of 2011, the transaction is valued at approximately USD 1.22 billion, including the mandatory open offer to the public shareholders of Patni. The share price is decided at Rs 503 per share.
Phaneesh Murthy, CEO of iGate is upbeat on the deal. In an interview to CNBC-TV18, he said that the first preference is to make both iGate and Patni into a complete integrated one company. However, his first option will be to have a US listing. "If that is not possible then we will look at an Indian listing," Murthy added. According to Murthy, combined size of USD 1 billion will give credibility for client acquisition. Further more, he is not expecting any attrition post Patni deal. Below is a verbatim transcript of Phaneesh Murthy's interview on CNBC-TV18. Also watch the accompanying video. Q: You alluded earlier to the possibility of a reverse merger because a merger would take a long time to happen and you said that you would keep Patni listed for many months post the completion of the transaction. Is reverse merger your preferred option since you de-listed iGate earlier. Would you want a merger into the listed Patni? A: I think our preferred option is really to try and combine and make sure that there is one integrated company. If I have a sub-preferred option clearly the fact that we get a lot of brand value by being listed on Nasdaq that is a sub-preferred option right there. So all options are on the table. But we are examining all of the structures. I think it will require significantly regulatory approvals. The fact that a cross border transaction of this size, of this scale has not yet been done. At least in our opinion we have not found any precedents where the full merger has happened has put us in uncharted waters. Preferred construct, the first important thing is to get one integrated company going with no fiction between the two companies from transfer agreements and so on and so forth and essentially have one set of shareholders. Under an ideal construct, I would like to have a US listing or if that is not possible then the Indian listing. Q: You spoke a bit about the synergies between the two brands. Just want to understand whether it is going to be the sum of the two which will create a billion dollars or you will go to market with one brand whether it is iGate or Patni whichever one and you think a combination of these two under one brand umbrella will help you clinch deals against the big players in the market? A: I think clearly it is a combination of the two companies because if you look at it the way the reporting mechanism works under iGate's reporting, iGate will be reporting the combined revenues and then you take out the minority interest for the minority shareholder portion below the EBITDA line. So effectively what happens is at the top-line you are actually reporting the full revenues of both the companies put together. So it will be a billion dollar plus. I think that is really what - from a go to market messaging - that is what we want to take to market. It is not just that. It is the differentiation that we are creating, the outcome based model, it is the solutions that we will create in each of the micro verticals. I think the combination of all of that is really what we are expecting to create the differentiation and the competitive edge in the marketplace. That is what we are going to be focussing on. The billion dollar gives us a bit of credibility as a platform to play in all of those spaces. It give us seat than more table so to speak. Q: Congratulations on this deal. Tell us a little more about how you plan to finance it in terms of debt that you will be taking. You did mention about the combined entity getting into several new verticals as well. What would those verticals be? A: I think the first is that if you look at the debt, we need roughly USD 1.22 billion if the entire open offer 20% is taken up. That is going to be done with roughly about USD 100 million of cash which is on iGate's current balance sheet, between USD 270 million and 480 million dollars of convertible preferred equity from Apax Partners and roughly up to USD 700 million of debt. The USD 270 million to 480 million, the variable number with our partners is actually because of two things. One is how much of the open offer is actually taken up and two whether we chose to do a common equity offering or not. We had filed a shelf where we retain the right to do about ten million shares of common equity offering. So those are the four components of financing that we will take to essentially buy the shareholders. Q: With a one billion turnover, you will get close to the pecking order of HCL Tech and comparable to MphasiS. Where do you stand as a combined entity whenever the deal gets doneDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
