London-headquartered BT Group (formerly British Telecom) plans to raise about Rs 1,000 crore by selling its remaining stake of 9.09 per cent in Tech Mahindra Ltd, a joint venture between BT and Mahindra & Mahindra (M&M) formed in 1986. The transaction will be done through the stock market via block deals.
BT — which held 42.4 per cent stake in the joint venture initially — has been consistently reducing its stake to focus on its core businesses back home. The sale of the last tranche of shares to institutional investors is being done by Credit Suisse. The share price of Tech Mahindra closed at Rs 882.35 on Thursday and the stake will be sold at a 7-8 percent discount to market price to attract investors. Tech Mahindra stock has shot up 54 per cent in the year-to-date versus a 26 per cent gain in the BSE Sensex and a 1 per cent fall in BSE IT Index, giving a good opportunity to the BT Group to exit the company at an attractive price.
When contacted, a Tech Mahindra spokesperson declined to comment on the news. An e-mail sent to the BT Group did not elicit any response.
Although both the companies have maintained that the stake sale will not impact Tech Mahindra’s business proposition with BT, the latter’s share in the revenue contribution has been coming down. Over the past few quarters, Tech Mahindra has reported that revenue from BT has been consistently falling. For the quarter ended September 30, 2012, BT’s business to Tech Mahindra was down by 3.6 per cent.
Earlier, the BT Group had stated its intention to exit the joint venture. After its holding in Tech Mahindra shrank following the latter’s IPO, BT initiated the stake sale process by selling 5.5 per cent stake to M&M in December 2010 for Rs 450 crore at Rs 653.6 per share. With this transaction, M&M waived off its right of first refusal on the rest of BT’s stake, paving the way for BT to sell more stake to other investors and raise the much-needed funds to meet its huge pension liabilities back home.
In August 2012, BT sold another tranche of 14.1 per cent or about 17.9 million shares in Tech Mahindra to institutional investors for a total cash proceeds of Rs 1,395 crore at Rs 777.73 per share. Thereafter, BT in a statement had acknowledged that further sales would be considered. M&M now owns close to 47.49 per cent stake in the company and has already announced that Tech Mahindra will be merged with its other acquisition, Satyam Computers Ltd.
“BT overall has been wanting to bring down its IT spends. Within that, we have managed to grow our share. Almost 65 per cent of BT's IT work is managed by Tech Mahindra, whereas 30-33 per cent is with global vendors. With BT revenues of $400-350 million, it is the single largest account for us and biggest when compared to others,” Vineet Nayyar, executive vice-chairman of Tech Mahindra, had said after the company announced its September results.
