The boards of Mahindra Satyam and Tech Mahindra have agreed to merge the two companies to create the fifth largest software services exporter by market value and helping it compete with bigger rivals for large outsourcing deals.
The merger will result in combined revenue of about $2.4 billion and more than 350 clients across different geographies and industrial sectors, Tech Mahindra said in a statement on Wednesday after a board meeting.
"The board of directors of the company today approved the amalgamation of Mahindra Satyam with Tech Mahindra," both the companies said in separate filings to the Bombay Stock Exchange.
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The exchange ratio for the merger was pegged at 2:17 ratio, i.e. two shares of Tech Mahindra to be given for 17 shares of Mahindra Satyam or shareholders will get one share of Tech Mahindra for 8.5 shares of Satyam.
"20.4 crore equity shares of Rs 2 each of Mahindra Satyam will be transferred to a trust of which Tech Mahindra will be the beneficiary," the filing said.
The move ends a tumultuous journey for Satyam, which had come on the brink of collapse after its former chairman and founder Ramalinga Raju said in January 2009 that profits had been overstated and assets falsified in the country's biggest accounting fraud.
Hyderabad-based Satyam, which saw many of its clients and staff exit after revelation of the fraud, was sold in April 2009 to Tech Mahindra, a unit of Mahindra & Mahindra, in an auction and was later renamed as Mahindra Satyam.
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The combined entity will be able to better compete with local bigger rivals such as sector leader Tata Consultancy Services and No. 2 exporter Infosys for large outsourcing contracts from global corporations, analysts said.
Shares of Tech Mahindra, which the market values at $1.6 billion, were trading 2.85 per cent up at Rs 666.80 at 12.32 pm, while Satyam was up 1.21 per cent at Rs 75.05 rupees.
Tech Mahindra, which provides IT services and solutions to telecoms companies, said its parent Mahindra group will own 26.3 per cent in the merged entity, while Britain's former telephone monopoly BT will hold 12.8 per cent stake.
Tech Mahindra's founder Mahindra group held 48 per cent stake in the technology company, while BT owned 23 per cent at the end of December, according to the stock exchange data.
With inputs from agencies