iGate to acquire 60.2% stake in Patni at Rs503 per share :: UBS

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UBS Investment Research
Patni Computer Systems
iGate to acquire 60.2% stake in Patni
 
„ iGate to acquire 60.2% stake in Patni at Rs503 per share 
iGate Corporation (NASDAQ:IGTE), backed by private equity firm Apax Partners,
has announced that it will acquire a 60.2% equity stake in Patni Computer (Patni)
at Rs503 per share. The deal values the company at a market cap of US$1.53bn, a
11% premium to current levels. iGate will acquire nearly 63% of stake in the
company (including outstanding ESOPs) for a value of US$920m. The offer price
of Rs503 per share is 9% lower than our expectation of Rs550 per share.

„ Acquisition to create US$1bn entity, help exploit complimentary skills  
The Patni-iGate combined entity will cumulatively cross the US$1bn revenue mark
(CY10/FY11), which could help the company participate in larger deals.
Complimentary capabilities—iGate’s banking and media practices are stronger,
while Patni has better capabilities in insurance, manufacturing, and
telecommunications—are expected to help the consolidated entity grow faster.
„ Integration challenges remain, senior management roles unclear
Given the relatively large size of Patni versus iGate, we expect integration to be a
challenge for the buyers. Concerns also remain on the go-to-market strategy,
branding and senior management retention in Patni. We expect more clarity on this
to emerge over the coming few weeks.

„ Valuation: maintain Buy, view deal as positive
We view the deal as a positive step for Patni as it removes the uncertainty that had
prevailed regarding the same in the past two to three years. We will revisit
estimates once further clarity emerges. We maintain our Buy rating with a DCFbased price target of Rs600.