Satyam to merge with parent to create a focused outsourcer

The company is gaining customers after its re-stated financial results were announced, an executive said

The planned merger of Indian outsourcer Satyam Computer Services with Tech Mahindra, its dominant shareholder, will lead to the creation of an outsourcer focused on key segments like telecommunications, manufacturing and enterprise applications, a company executive said on Tuesday.

The company has started investing in these industry verticals and new service lines, said Atul Kunwar, president of Satyam, during a webinar by research firm Everest Group.

Other segments Satyam is targeting are digital convergence, banking and financial services, health care and life sciences, and retail, travel and logistics, Kunwar said. The company is also building competency in the areas of private, public and hybrid clouds, he added.

Satyam informed Indian stock exchanges on Tuesday that it would announce on Nov. 15 its results for the quarters ended June 30 and Sept. 30.

A government appointed board at Satyam ordered last year that Satyam's results should be restated, after the company's co-founder, B. Ramalinga Raju, said that the company's revenue and profits had been inflated for several years.

Satyam reported in September revenue of 54.8 billion Indian rupees (US$1.22 billion at the exchange rate on the last day of the fiscal year) for the fiscal year ended March 31, 2010, down by 38 percent from revenue in the previous fiscal year.

The company however reduced its losses to 1.25 billion rupees from 81.8 billion rupees a year earlier. A large part of the losses last year were related to the financial irregularities at the company.

Tech Mahindra, another Indian outsourcer, which has BT as a key investor, last year acquired a 43 percent stake in Satyam as a "strategic investor."

The merger will start soon after the quarterly results are announced this month, Kunwar said. Subject to regulatory and corporate board approvals, the merger should take between six to nine months, he added.

The restatement of the accounts, which had been delayed by over a year, gave a sense of Satyam's financial capability, and the risk associated with the company, Kunwar said.

Satyam's customers have responded well to the restatement of the accounts, Kunwar said. Many that had placed embargoes on new business with Satyam or avoided doing business have started coming around, he said. The company will reveal details of new clients when it announces quarterly results later this month. New business has come across industry verticals, geographies and service lines, Kunwar added.

The combined entity after the merger of Tech Mahindra and Satyam is positioned to be among India's tier-one service providers, which is a position Satyam occupied before the company's financial scandal, said Anand Ramesh, research director at Everest.

The merged company is likely to build its growth strategy around telecommunications, which is a key business area for Tech Mahindra, Satyam's traditional strength in enterprise applications like ERP and the Mahindra Group's focus on manufacturing, Ramesh said.

The company can also build a business process outsourcing (BPO) practice around these key vertical segments, Ramesh added. The two companies now have about 11,000 staff in BPO, but primarily serving the telecommunications industry, Kunwar said.

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