Any revenue from TriZetto will add to guidance: Cognizant

Cognizant on Monday said it will acquire US-based TriZetto Corporation for USD 2.7 billion in an all cash big-ticket deal, a move that will help the IT services firm tap the lucrative healthcare IT software and solutions market for revenue synergies.Speaking to CNBC-TV18, Gordon Coburn, President, Cognizant said revenues from TriZetto will add to incremental guidance, no matter how big or small. “TriZetto's margins are comparable to us; this is a topline play," he says.

He expects TriZetto deal to close by Q4 of the current fiscal along with all regulatory approvals."US healthcare clients are desperate to cut costs and therefore, there cannot be a better time than today to buy TriZetto,” he told the channel.Cognizant-TriZetto combine can compete for larger deals, adds Coburn. Experts too believe that in terms of grabbing the healthcare pie, the firm may race ahead of Accenture, IBM, EMC and Capgemini, if the deal goes through.

Below is a verbatim transcript of the interviewQ: Can you break up the financial structure of this deal. It is a USD 2.7 billion deal, you have taken a financing of around USD 1 billion but the deal will be done in cash. Can you give us a break up of how you are funding this deal and how much of your cash reserves are you dipping into? You have a cash reserve of around USD 3.8 billion.A: We are paying about USD 2.7 billion of cash for the deal. Obviously that is cash that is based in the United States. We have approximately USD 4 billion of cash on our balance sheet but that money is spread around the world. So, we do expect to take out about USD 1 billion in financing and the remaining USD 1.7 billion we will pay from our cash reserves that obviously leaves our balance sheet in very healthy shape to ensure that we the stability our clients are looking forward at. We continue to conservatively manage our business and it also leaves us cash available to continue with our share repurchase programme that we know is important to our investors.Q: You have said that you will be completing the deal by Q4 of 2014. So, is it safe to say that the revenues from the deal will start coming in from Q1 of 2015 and can you tell us on an annual basis what is the kind of incremental revenue addition that you are expecting from this deal?A: We expect the deal to close in Q4. We might get a little bit of revenue in Q4. Our guidance excluded any revenue that came from TriZetto. So, if we get any revenue that would be incremental. TriZetto is currently for the last 12 months did a little over USD 700 million of revenue on a last 12 months basis. We would certainly expect growth in calendar 2015. We haven’t given specific numbers but as we said we think a combination of TriZetto's organic growth combined with the significant revenue synergies that we see over the next five years, we think that will be about USD 1.5 billion plus of revenue synergies. Some of that will kick in 2015. So, for next year we would expect that revenue from TriZetto plus the synergies would be neutral to positive to Cognizant's overall growth rate.Q: Would this possibly mean that you may hike up your guidance for 2014 because you had given a guidance before the deal. So, is there a possibility that by Q4 of 2014 we could see a revision in your full year guidance?A: I think that entirely depends on when the acquisition closes. If we get some revenue from TriZetto in Q4 that will certainly be incremental to any guidance we have already given. Obviously we don’t know the exact date that it will close.Q: Can you give us an idea about the kind of approvals that are required and the timeline? Q4 is the higher limit that you are looking at or is there a possibility it could trickle into 2015 as well?A: We think it is highly unlikely that it would roll into 2015. At this point we fully expect that the transaction will receive the necessary government clearances and remaining accounting things that have to be done post close during Q4 of calendar 2014._PAGEBREAK_Q: There has been a lot of talk about how TriZetto was actually valued at around USD 3 billion. You have cracked the deal at USD 2.7 billion lesser than what the street was expecting. Would you say that this valuation is at a discount to what the street was expecting, this is around 5-6 times of revenues if I am correct?A: When we look at the value of TriZetto we focus less on what the street was expecting. We look at what value does it bring to Cognizant. There could not be a better time than today to acquire TriZetto when you look at what is happening in the US healthcare system. US healthcare clients are desperate to simultaneously reduce costs and invest in innovation. Now that we can bring a full integrated technology and services to these clients we think it is meeting a immediate and real need that the healthcare market happens.

So, when we looked at the valuation to pay we took into account that we believe there is significant synergies as part of this transaction that obviously will be good for Cognizant and shareholders but also we believe it is going to be good for the US healthcare system in making it more efficient. So, we believe we paid a fair price based on a very deep knowledge we have of the business.