IT firm iGate
on Monday accepted the offer of minority shareholders to delist Patni Computer Systems
, the company it acquired in January 2011
, from the Indian stock exchanges for a price of Rs 520. The price is far higher than what the firm anticipated. In the past, the firm had consistently maintained that any price above Rs 450 would be unacceptable.
Before accepting the delisting offer
, iGate owned 82 per cent in Patni. iGate had paid Rs 503 per share to buy the stake of Patni promoters in a deal valued at $1.22 billion. After Monday's announcement, iGate would own 93 per cent in Patni.
iGate, which already carries a debt of $770 million, has now raised an additional $265 million from DBS Bank to finance the delisting. CEO Phaneesh Murthy
accepted that the deal proved expensive but closed it since it was strategic for the company - iGate, which now goes to market under the brand 'iGate Patni', would eventually drop 'Patni' from its name. Murthy has always maintained that Patni being a family name was not defensible. Who stops anybody from opening something like 'Patni Jewellery'?
"Is it expensive? Yes. Is it strategic and important to close? Yes. Would I have wanted it 10 per cent cheaper? Yes," Murthy said during a press conference in Bangalore.
So how can the firm repay the huge loan, more than twice the cash it has on its balance sheet? The firm has $435 million in consolidated cash.
No company can afford to exhaust all its cash to repay a loan, neither would iGate. But here is the logic: The firm's performance
improved in the fourth quarter ended December 2011. Gross margins expanded to 40 per cent from compared to 37 per cent in the third quarter. EBITDA showed improvements as well. The firm would have to pay $90 million in interest payments every year. The management estimates that if interest payments and taxes are excluded, it would be able to generate cash of $125 million - $150 million every year. Together, with part of the cash on its balance sheet, it would be able to repay the loan in a few years.
The price of Rs 520 was determined through a reverse book building process. Public shareholders holding equity shares of Patni were invited to submit bids via an offer that opened on March 28 and closed on March 30. iGate received offers for 16 million shares or 60 per cent of the total offer size of 26.8 million shares.