Knight overnight

Venkatachari Jagannathan
28 May 2002

Such a deal was signed last week between the Rs 321-crore revenue OrbiTech Solutions (a Citigroup company) and the Rs 293.80-crore Polaris Software Lab. OrbiTech closed last fiscal with an after tax profit of Rs 107 crore, while for Polaris Software the figure was Rs 58.86 crore.

As per the memorandum of understanding (MoU) signed between the two, OrbiTech will merge itself with Polaris and its shareholders (employees holding 6.75 per cent and OrbiTech holding 93.75 per cent) getting 14 shares with a face-value of Rs 5 in Polaris for every 25 shares (face-value: Rs 2) held in OrbiTech by them.

Post-merger, the equity-base of Polaris will go up by Rs 29.41 crore to Rs 55 crore. The merger will be effective from 1 April 2002 this fiscal after getting the approvals from Polaris shareholders and the court. Post-merger, Citigroup Venture Capitals stake in Polaris (valued at Rs 2,700 crore) will be 56 per cent, while the original shareholders of Polaris will hold 46 per cent.

Soon Citigroups holding in the company will come down to 49.5 per cent. Certainly the company will not figure as a subsidiary in Citigroups balance-sheet as and when it is drawn up, says Polaris chairman and managing director Arun Jain. The stake reduction will be achieved when Polaris signs up a major client or acquires another outfit.

If the deal goes through in the present format then Jains current 46-per cent holding in Polaris will come down 25 per cent. Till now in India the attitude of the business community is to have their stake control intact to be handed down to generations. Business is not looked at dispassionately. This is one of the reasons why many American companies have their market cap less than the turnover. But I have decided to dilute my control to create wealth and deliver value for the shareholders, says Jain.

The deal has caught the breath of industry analysts who are going gaga over Polariss future. And they dismiss the thought of Citigroup concluding this deal as an exit strategy from OrbiTech.