Patni PE investors want CEO of their choice

Private equity investors lining up to buy a stake in Patni Computer Systems are prepared to pay a premium if they can appoint a chief executive officer of their choice post the acquisition.

According to a source known to a private equity investor that has expressed interest to buy nearly 28 per cent equity, the appointment of a CEO would give the acquirer management control in the country's sixth largest software company.

"The tenure of current CEO and founder Chairman Narendra K Patni will come up for review in December next year as per the contract signed between the company and Patni two years ago. It means that the successful acquirer will emerge as the largest shareholder but will have no control on the daily functioning for more than a year," the source said.

Private equity funds Texas Pacific Group, Apax Partners, Blackstone and Carlyle and among those interest to buy the 16.3 per cent stake that General Atlantic owns in Patni.

Narendra Patni's brothers - Ashok and Gajendra - hold nearly 29 per cent, of which they will sell 12 per cent. The successful bidder for the 28 per cent equity will have to come out with a 20 per cent open offer in line with capital market regulations.

AK and GK Patni stepped down as executive directors earlier this month and the company's board re-designated them as founder directors.

This move was seen as a step to induce their brothers to follow suit and sent a message to the probable buyers that they didn't want to get involved in day-to-day management.

However, sources close to AK and GK Patni insisted that the re-designation was aimed at describing the role of the brothers more clearly.

"In any case they were not involved in day-to-day operations. Their role was essentially at the board level and this remains unchanged."

It has also been mentioned that General Atlantic wanted to en-cash its holding, whereas the Patni brothers wanted to sell a part of their holding to attract a buyer who could bring in substantial business and a fresh management.

The brothers felt that the company was lagging behind for quite some time and that this called for a change in leadership, the sources said.

Adventus is advisor to AK and GK Patni. Ambit is advising N K Patni.

The sources said the buyers would also face problems as all the Patni brothers had veto rights on the change of the articles of the company.

However, this right did not extend to any shares sale, implying that any of them was free to sell shares to a preferred buyer.