Acquisition of CMC

On 26 December 2001, the government sold a 51-per cent stake in computer maintenance and software firm CMC to Tata Consultancy Services (TCS), a Tata Group company, for Rs 1.52 billion.

Tata Sons had also come out with an open offer to acquire another 16.69 per cent stake in the company at Rs 281.26 per share. The total value of the open offer was Rs 72 crore. Tata Sons now holds 51 per cent share in CMC, while the Government of India holds 32.31 per cent and the public hold another 16.69 per cent.

For TCS, which gets a majority of its revenues from the overseas, notably the US market, this acquisition provides it with an opportunity to consolidate its operations in India. It also indicates that the domestic market is attaining greater importance for the company.

TCS CEO S Ramadorai said: "We believe that the domestic market has a tremendous opportunity for the company, and CMC already has an established presence in India. The domestic IT services sector is expected to grow in the medium- to long-term period at the rate of 25 per cent CAGR till the year 2004."

Tata Consultancy Services, India’s largest software exporter, is now in the process of consolidating the acquisition of CMC, which TCS had acquired through the disinvestment route in October last year. According to R Ramanan, executive director of CMC and TCS representative on the CMC board, a working group is now managing the integration process.

TCS is in the process of implementing a performance-based pay structure in CMC and the variable pay or performance pay will be determined by an EVA (economic value analysis) model used by TCS. The functional areas that have been identified for integration are finance, human resources, sales and marketing, services, R&D, and product integration.

CMC has also expertise in power and utilities and this will help TCS expand its practice in this area. Both TCS and CMS have solutions for the stock exchanges. And CMS has products for the logistics management that will be integrated with the industry solutions of TCS.

CMC has a large IT-training business with its own centres in several parts of country. TCS has also an internal trading division with a large campus in Thiruvananthpuram, Kerala.