TechMa, Satyam get to merge, be No. 5

Putting to rest one-and-a-half years of uncertainty, the Andhra Pradesh (AP) High Court on Tuesday finally cleared the decks for the much-awaited merger of Mahindra Satyam (formerly Satyam Computer Services) and Tech Mahindra.

On Tuesday, Justice N R L Nageswara Rao dismissed appeals against the merger filed by 35 entities, but said all investigations into the four-year-old accounting fraud at Satyam will continue.

The Bombay High Court, the Competition Commission of India, Bombay Stock Exchange and the National Stock Exchange had approved the merger almost a year ago.

Tuesday’s judgement will likely lead to the creation of India’s fifth largest IT company – it would still be behind TCS, Infosys, Wipro and HCL – with revenues of $2.4 billion and a headcount of 80,000 employees.

The boards of both Mahindra Satyam and Tech Mahindra had proposed what proved to be a controversial swap ratio of 2:17 (shareholders will get two shares in Tech Mahindra for every 17 shares held in Mahindra Satyam) that incensed minority shareholders who opposed it.

The latter alleged that the Mahindra group had fixed the ratio in its favour. Family members of Satyam’s disgraced founder Ramalinga Raju had also opposed the merger.

However, Tuesday’s judgement has renewed its faith in the judiciary, Mahindra Satyam said. “The next step will be to formally conclude the integration process,” said a company spokesperson.

Tuesday’s judgement papers are expected to reach the company within a week, after which approvals of registrars of companies in Maharashtra and Andhra Pradesh will be sought, a process that could take 1-2 months.

The boards of both companies will likely announce the combined entity’s new name in August. That could prove a mere formality as the two companies already function as a combined entity with a common CEO in C P Gurnani.

Manik Taneja of Emkay Global said, “Since this was just a formal announcement, the emergence of a new software giant would not come as a surprise to peers.”

The road ahead for the merged entity may not be smooth, said Taneja. “Tech Ma’s potential to grow depends on the telecom vertical which has been bleeding since the last 2-3 years. For Satyam, mining customers and winning more deals is the need of the hour.

While a larger combined entity will help in pitching for more deals, the gaps in investment in sales and marketing will also likely be closed with the merger.”

After the judgement, shares in Mahindra Satyam ended at Rs 111.05 on BSE, up 4.17%, while those in Tech Mahindra closed at Rs 968.20, up 2.91%.