Tech Mahindra, Satyam to merge at 1:8.5 swap ratio

Nearly three years after acquiring Satyam Computer Services, the Mahindra Group today announced the merger of Mahindra Satyam with its another technology arm Tech Mahindra, creating the country's fifth largest software firm by market capitalisation with an estimated annual revenue of about $2.4 billion.

The merger will take place through a share swap, under which shareholders of Mahindra Satyam will get one share of Tech Mahindra for every 8.5 shares they hold. The merged entity, which is yet to be named, will be headquartered in Mumbai and will have an employee strength of over 75,000 and more than 350 active clients across 54 countries.

The process is likely to be completed in around nine months after all necessary approvals are in place. The merger will however, be effective from April 1, 2011.

Markets gave a thumbs up to the deal as the share price of both Tech Mahindra and Mahindra Satyam rose by 5.5 per cent and 4.6 per cent respectively. "The combined entity would be having market cap of about Rs 17,000 crore, making it the fifth largest IT company in terms of market cap," said Jagannadham Thunuguntla, strategist and head of research, SMC Global. Mahindra Satyam CEO CP Gurnani is most likely to take over as the CEO of the merged entity. "I have not been able to see any other candidate, so no," said Vineet Nayyar, vice-chairman and MD of Tech Mahindra while answering a question on whether there was any candidate other than Gurnani for the post.

To accomplish the share swap deal, Tech Mahindra would issue 10.34 crore new shares taking its total outstanding shares from 12.74 crore to 23.08 crore. While at 1:8.5 share swap, Tech Mahindra should have issued 13.84 crore new shares to accommodate the entire shareholding in Mahindra Satyam, it has issued only 10.34 crore shares. The reason being, out of promoters' holding of 50.2 crore shares in Mahindra Satyam, almost 29.75 crore shares have been cancelled and only 20.4 crore shares would be available for conversion with the promoters thus reducing Satyam's new issuances by 3.5 crore shares.

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