M&M to acquire 5.5-per cent Tech Mahindra stake from BT

26 Nov 2010

Automobile major Mahindra & Mahindra (M&M) announced today that it will be acquiring an additional 5.5 -per cent stake in its joint venture, Tech Mahindra, from its partner, the BT Group Plc, for an undisclosed sum.

M&M already has a 43-per cent stake in Tech Mahindra, while the BT group has less than a 30 per cent stake. At current prices, the 5.5 per cent sale would fetch the British group a little less than $100 million.

However, the Indian company has agreed to grant BT a waiver of its pre-emption rights, enabling the latter to sell the remaining shares to other investors. BT is looking to raise funds to meet its pension deficit.

But the British firm said today that it will continue to have an equity stake in Tech Mahindra at least for some more time.

Analysts fear that Tech Mahindra could gradually lose its status as 'preferred outsourcer' for BT, following the dilution of its equity holding. While the British telecom major has asserted that Tech Mahindra will continue to be its key strategic supplier, its share in the Pune-based outsourcing major's revenue has declined to 35 per cent from about 50 per cent a year ago.

Tech Mahindra, which provides IT services to the telecom sector, has a 42.66 per cent stake in beleaguered Satyam Computers, which it acquired last year (and now renamed Mahindra Satyam).

Its ownership of the Hyderabad-based company has hurt Tech Mahindra's earnings. Earlier this year, American telecom major AT&T, sold off its eight per cent stake in Tech Mahindra.

Last month, Tech Mahindra announced second-quarter revenues of Rs1,533.9 crore for the September quarter. Operating profit rose by 32.5 per cent, while profit after tax (before earlier period items) went up by 28.8 per cent to Rs.186.7 crore. Its results included a charge of Rs.36.7 crore on account of its holdings in Mahindra Satyam.