Merger of Mahindra Satyam

Tech Mahindra  –  Satyam Merger  Ashok Anchan 61 Merlyn Coelho 75 Jancy Nadar 85 Olson Pereira 89 Swati Shetty 96 Ujwala Todkar 102

Company Profile : Tech Mahindra

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Tech Mahindra Limited is an Indian provider of information technology (IT), networking technology solutions and business process outsourcing (BPO) services to the global telecommunications industry. Headquartered at Pune, India. It is a joint venture between the Mahindra Group and BT Group plc, UK with M&M (Mahindra and Mahindra) holding 44% and BT holding 39% of the equity. Tech Mahindra said it has entered into the Top-20 global tech services brands list (by brand value) in 2017,as per an independent assessment by a valuation and strategy consultancy, Brand Finance.

Company Profile : Satyam Satyam Computer Services Ltd provides solutions and services in the information, communications and technology industry. •

The Company is engaged in computer programming, consultancy and related services. •

Its operating segments include Information Technology (IT) Business and Business Processing Outsourcing (BPO). •

The Company offers a bouquet of services, which includes telecom services, consulting, application outsourcing, infrastructure outsourcing, engineering services, BPO, platform solutions and mobile value added services. •

It has principal offices in India, the United States, the United Kingdom , Germany, Canada, Australia, Singapore, Malaysia, Philippines and Brazil, among others. •

Balance sheet of Mahindra

Balance sheet of Satyam

Motives of the Merger •

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The merger will result in the creation of a new offshore services leader with revenues of approximately US$2.4bn in revenues, approximately 75,000+ strong work force and 350+ active clients (including Fortune Global 500 companies), across 54 countries. The joint entity will have a unified go-to-market strategy with deep competencies and a balanced mix of revenues from Telecom, Manufacturing , Technology, Media & Entertainment, Banking Financial Services and Insurance, Retail and Healthcare. Revenues will be well balanced with a diversified global footprint that would boast of contribution from Americas at 42%, Europe at 35% and Emerging Markets at 23%,

Motives of the Merger

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The combined entity will leverage Tech   Mahindra’s expertise in Mobility, System Integration, and delivery of large transformations and to better penetrate the opportunity presented by Mahindra  Satyam’s diverse set of clients across multiple verticals. Likewise Mahindra   Satyam’s expertise in Enterprise Solutions will enable a more complete value proposition to be delivered to Tech Mahindra’s clients. The combination will benefit from operational synergies, economies of scale, sourcing benefits, and standardization of business processes.

Reasons for the Merger Motivation for Takeover 

Diversification

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Broadens its customer base

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Stronger merged entity

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Financial support

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Relief to shareholders

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Management

Tech Mahindra

Satyam

Strategies of Tech Mahindra 

To acquire a company with strong customer base

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Merger/takeover should result in a strong merged Entity

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Acquire a company which will help in diversification

How the Merger took Place

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Year 2009, founder and president of   Satyam computers, Ramalinga Raju, confessed to having overstated revenues and profits.

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The State appointed a new board of   Satyam Computer to-

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find a suitable investor willing to acquire the controlling shares in Satyam,

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manage its affairs until then.

Tech Mahindra wins its bid for 31 percent of Satyam

Funding Pattern of the Merger Tech Mahindra had raised Rs550 crore from Tata Capital and IDFC to fund its takeover of scam-hit Satyam Computer. •

Tech Mahindra raised these funds by issuing debentures which are convertible into shares of Venturbay Consultants, through which it acquired Satyam Computer. •

Besides, Tech Mahindra had also borrowed Rs1,450 crore from various banks, mutual funds, institutions and NBFCs at an interest rate of 10%, part of which had been used for funding the acquisition of Satyam. •

In the first phase of acquisition, Tech Mahindra had paid about Rs1,756 crore for 31% equity through preferential allotment of shares in Satyam which was also listed at NYSE besides Indian bourses. •

Balance sheet of Mahindra Satyam

Mahindra Satyam SWOT Analysis Strengths

1.Global presence 2. Broad range of research and development Services 3. Broad services portfolio 4. Strategic alliances 5. Strong financial position, company has revenue of US $ 1.8 billion and employee strength of 33,353 Weaknesses

1. Low operating margin of other group of companies Opportunities

1. New Brand Identity and synergy with the parent company 2. Launching BPO services 3. Huge potential in domestic market 4. Increasing in Global IT spending Threats

1. Fluctuations in currency exchange 2. Process Non-compliance 3. Increasing cost of Human capital

a n ra a yam s

Journey

Growth Prospects •

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The merger will reduce Tech Mahindra's exposure to the telecom sector to 47% by adding other verticals such as manufacturing, media, entertainment, and retail. In addition, the share of BT, its biggest client will reduce to 17% of revenue from over 35%. The company will integrate its solutions with the various offerings of Satyam. For example, it plans to mine more than 20 of its own accounts by offering services provided by Satyam such as enterprise applications and shared corporate services. Tech Mahindra is also seeing renewed traction in its core telecom service offerings in regions including Australia, New Zealand, and Asia.

Revenue Contribution & Shareholding Post Merger Revenue contribution post merger

Sharholding:

Telecom: 47%

Mahindra & Mahindra: 26.3%

Manufacturing: 17%

BT : 12.8%

Technology, media & entertainment: 10%

Trust: 10.4% (treasury share)

BFSI: 11%

Mahindra Satyam public Shareholders: 34.4%

Retail: 5%

Tech Mahindra public shareholders: 16.1%

Others: 7%

The swap ratio for the merger is 2 shares of Tech Mahindra (face value of Rs. 10 each), for every 17 shares of Mahindra Satyam (face value of Rs. 2 each)

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Synergies & Challenges Synergies: 

Diversification into multiple verticals like BFSI, Manufacturing and Retail

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Balanced exposure across geographies

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Scale benefits due to substantially larger size of the business.

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Introduction into the Aerospace Industry

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Will become 4th largest IT service firm in India only behind Tata Consultancy Services, Wipro Technologies and Infosys Technologies.

Chal lenges to be faced by Tech Mahindra after acquisition of satyam: 

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Reduce the workforce to an optimum level To regain customer confidence To deal with the issues relating to verticals in which the company has no prior experience

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Has to complete all the legal liabilities of Satyam Computers.

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Challenge of merging the work cultures of both the companies

Conclusion

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Fair Valuation.

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Opportunity for Tech Mahindra to expertise in various arenas.

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Opportunity for Tech Mahindra to enter new markets in different parts of the world.

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Tech Mahindra will also implementation business.

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It will be very profitable for Tech Mahindra to tap the clients of Satyam.

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Major challenge is to convince Satyam   Computer’s clients that the new management team is firmly committed to maintain service quality.

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