A clutch of private equity players are interested in acquiring UK telecom major British Telecom’s stake in Tech Mahindra, according to industry and banking sources. British Telecom currently holds over 31% in the venture and is learnt to be keen on retaining 10% in the venture, post-transaction, given that it has committed $2 billion in business to Tech Mahindra, company sources told ET. A part sale of 21% in the company would value the transaction at over Rs 1,850 crore at Thursday’s closing price of Rs 771.40 on BSE.
“BT is not looking at a total exit from Tech Mahindra. While Tech Mahindra is no more a strategic investment for British Telecom, it has substantial and long-term business interest in the Indian company,” said a source. The sale will help it at a time when its profitability is on the slide while also helping it earn a good return on the residual stake when there are limited attractive investment options in the market.
“BT has given business worth over $2 billion to Tech Mahindra and would prefer to have board representation by retaining some stake,” the source added.
The 20% stake on offer makes a strategic investment by any other Indian IT player such as Infosys Technologies or Wipro unlikely, commented an industry source. “Even if they get BT’s entire stake, the question is whether any of them will be a partner in a JV where the Mahindras have the major stake. In contrast, a private equity player could look at it only from a 4-5-year investment horizon,” he added. The actual transaction might take place in about a month’s time.
In most joint ventures, the first right of refusal in case of a sale is with the other partner. However, when contacted, a Tech Mahindra official said: “Our official stance is unchanged. The statement we issued earlier still holds good.”
The earlier statement made by Tech Mahindra president Sanjay Kalra had said: “We do not comment on rumours and speculation. As a strategic partner of BT, we have enjoyed a great relationship with BT over many years and will continue delivering on long-term contracts and winning new business.”
BT responded to an ET query saying: “BT does not comment on rumour and speculation. BT has operations and investments worldwide, which we regularly review. India remains a critical market both for BT and our customers, and we expect to continue developing both the operational network and service presence that we have established over a number of years.”
BT’s stake sale in Tech Mahindra has been more a question of when, rather than if. In 2006, the telco had chosen to drop its name from what was earlier known as Mahindra British Telecom, indicating an eventual exit. But what has given an impetus to the whole process now is BT’s own troubles and the fact that it has achieved a reasonable scale in its own captive.
“BT is facing a cash crisis. Its last quarter was one of the worst,” said an equity analyst.
Shares of Tech Mahindra were up 1.86% on BSE on Monday to Rs 771.40. “With around 60% of its revenues and 10% equity holding, BT will continue to have a big say in the operations of Tech Mahindra,” the analyst added.
Source: Economic Times