L&T Info in talks to buy Patni

Written by MG Arun | Surabhi Agarwal | New Delhi, Mumbai | Updated: Nov 5 2009, 06:17am hrs
Merger
L&T Infotech, part of Rs 40,000-crore engineering & construction major Larsen & Toubro (L&T), is in advanced talks to acquire a majority shareholding in the countrys sixth-largest software firm, Patni Computer Services.

According to sources close to the development, L&T has already completed due diligence and contours of the deal are being worked out. L&T Infotech has been in talks with Patni for some time now. We have already completed due diligence, confirmed a senior L&T source, who did not wish to be named.

The development comes after all three Patni brothersNarendra Kumar, Gajendra Kumar and Ashok Kumarfinally decided to sell. They together hold around 48.30% stake. In 2007, talks for a similar sale had ended in a stalemate, as only Gajendra and Ashok were willing to part with their holdings. Narendra, who has been actively involved in running the business, was not.

Another trigger for a sale at this time is that General Atlantic also wants to exit from the company. The PE firm has around 18% stake and had invested $100 million in Patni in September 2002.

Industry sources said Patni hired Ambit Capital to conduct a valuation of the company. Analysts said the deal size could be around $1-1.5 billion. Patnis share price has been hovering at around Rs 450 and it is likely to get Rs 550-600 per share. Patnis scrip closed at Rs 456.95, up 4.70%, on the BSE on Wednesday.

The company has $380 million in cash and equivalents on its books, so an offer price in the range of $1-1.5 billion would be fair, said one IT analyst. Patni reported revenues of $718.9 million last financial year.

In an email response to questions about the sale, Patni CFO Surjeet Singh said, This is a rumour and we do not comment on speculation. When contacted by FE, L&T Infotech CEO Sudip Banerjee was also tight-lipped. I do not want to comment on speculation in the media, he said.

Sources said if L&T Infotech acquires Patni, it would make the combined entity the fifth-largest software firm in India. L&T Infotech is currently in 11th place.

However, having been pipped by TechMahindra in the bidding for fraud-hit Satyam Computer Services in April, L&T Infotech is being cautious about the Patni deal.

But analysts said it could not afford to tread too cautiously. L&T Infotech has to move fast. Once the market goes up, say beyond the 20,000 mark, Patni or any other IT company will become a difficult buy, said a source. In an earlier interview with FE, L&T CMD AM Naik had said he plans to make L&T Infotech a $1-billion (around Rs 4,800-crore) company. Facing pressure on revenues from the infrastructure and construction sectors over the last one year owing to the economic slowdown, L&T has focused on new drivers of growth, including infotech, power and oil & gas.