Tech Mahindra wins bid to acquire Satyam

MUMBAI (Reuters) - India's Tech Mahindra will pay more than $500 million for a controlling stake in Satyam Computer Services Ltd , throwing a lifeline to the fraud-hit firm and propelling itself into the top tier of Indian outsourcing firms.

Tech Mahindra, 31 percent-owned by Britain's BT Group , edged out engineering conglomerate Larsen & Toubro , widely seen as a front-runner, and private equity firm WL Ross & Co, in a bid to buy a stake of up to 51 percent in the company at the center of India's biggest corporate scandal.

Satyam's sale is likely to help restore confidence in India's IT services sector at a time when the global economic downturn has already slowed growth.

"Tech Mahindra will really have to act fast now and if they don't act fast then client erosion will continue at Satyam," said Tarun Sisodia, head of research at Anand Rathi Financial Services.

Three months ago, Satyam's founder and chairman shocked investors by saying profits had been overstated for years, and put in doubt the survival of a company once ranked as India's fourth-largest software services exporter.

The government quickly stepped in and sacked the board to limit damage to India's once-shining IT services sector.

BIGGER PLAYER

Tech Mahindra will pay $351 million for a 31 percent preferential allotment of new shares, and then make an open offer for a further 20 percent of the company at a cost of up to around $225 million.

Tech Mahindra, a unit of tractor and utility vehicle maker Mahindra & Mahindra , offered 58 rupees a share, a premium of 23 percent to Satyam's previous close.

With the purchase, Tech Mahindra, the sixth-largest Indian outsourcer, will be better equipped to wrestle market share from leading local rivals Tata Consultancy Services , Infosys Technologies and Wipro .

The Satyam buy will help Tech Mahindra diversify its services by reducing its reliance on the telecoms industry, analysts said.

Tech Mahindra shares surged by as much as 25 percent after Larsen & Toubro, which owns 12 percent of Satyam, was reported to have dropped out of the bidding, but trimmed gains to end up 12.3 percent at 359.45 rupees, their highest close in nearly six months.

Satyam shares rose 3.6 percent to 48.85 rupees, after earlier jumping more than 16 percent to a nine-week high. The company was valued at roughly $660 million in the market.

UNCERTAINTY OVER VALUATION

Analysts have said Satyam looks attractive due to its long list of marquee clients and after a plunge in its market value caused by the $1 billion-plus fraud.

However, they were unsure how to value the company due to uncertainty about its accounts and legal liabilities arising from lawsuits filed in the United States by its shareholders.

In October, Satyam, which means "truth" in Sanskrit, had said it had around 53,000 employees and more than 600 clients including General Electric , Cisco Systems and Qantas Airways .

The holders of Satyam's American Depository Shares would be able to participate in the public offer.

Tech Mahindra's winning bid of 58 rupees a share was more than the 45.90 rupees offered by Larsen & Toubro and 20 rupees a share by WL Ross, Satyam Chairman Kiran Karnik told reporters.

The winning bid has to be approved by the Company Law Board, which said it expected Satyam to seek approval within 2-3 days.

The vast majority of Satyam's customers have stayed on through the process of a stake sale, Karnik said.

Satyam has not reported results since releasing July-September figures in October. Its accounts are in the process of being restated.

Satyam's board had appointed two investment banks, Goldman Sachs and Avendus Capital, to find a strategic investor.

($1=49.9 rupees)

(Additional reporting by Prashant Mehra & Narayanan Somasundaram and Devidutta Tripathy; Writing by Sumeet Chatterjee and John Mair; Editing by Anshuman Daga and Jean Yoon)