Sharp gains expected for Majesco's Indian shareholders after US sale

Cash per share after transaction at Rs 852 is more than double the current price

The decision of Majesco (India) to sell its US subsidiary to private equity player Thoma Bravo is likely to open up a cash bonanza for Indian shareholders.

Given the acquirer is paying $13.1 per share (Rs 970), the deal values the Nasdaq-listed Majesco (US) at $594 million (Rs 4,430 crore). The offer is at a 72 per cent premium to the closing price on the Nasdaq. Majesco (US) offers software services and solutions to insurance companies and has been valued at 4 times its FY20 sales.

Majesco (India) will get $421 million or Rs 3,154 crore for its 74 per cent stake in the American entity. Given the market capitalisation of Majesco (India) is around Rs 1,000 crore, the buyout price is thrice the valuation of the listed Indian parent. After capital gains tax, the Indian entity is expected to get Rs 2,550 crore. Coupled with cash on the books, total cash with the company would be Rs 2,581 crore, according to Devang Bhatt of ICICI Securities.

 

 

Majesco (India) has indicated that it will distribute the amount among shareholders by way of dividend or buyback, which would peg the fair value of the stock at Rs 852 a share. This is 121 per cent higher than Monday’s price of Rs 386.

The stock hit the upper circuit in trade and was up 5 per cent on Tuesday, closing at Rs 401.15.
 

The US subsidiary accounts for almost all of the revenues of the company and given the acquirer intends to take the company private, the timeline of the deal completion and cash distribution is key for investors. The transaction is expected to be closed by the end of CY20.