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Patni Computer Systems Ltd. (PTNI.BO) Rs377.60
Negative News Equity Research
Patni acquisition completed; top executives replaced, reiterate Sell
News
In a press release yesterday, iGate announced completion of its acquisition
of Patni Computer Systems, with the buyout of the promoters (45.6%),
General Atlantic (17.4%) and a 20% mandatory tender offer to public
shareholders, which was fully subscribed — taking iGate’s stake to 83%.
iGate declared that both iGate and Patni will continue to exist as separate
listed entities and will work together, but on an independent basis, on an
integration exercise, in the best interests of their respective stakeholders.
The Board at Patni has been reconstituted with Jai Pathak appointed as
Chairman and Phaneesh Murthy as CEO of Patni. Jeya Kumar, CEO, has
stepped down and Surjeet Singh, CFO, will step down after 31st May 2011.
Analysis
(1) iGate stated Patni will continue as a separate listed entity. However, in
the concall, iGate suggested it might look to acquire the remaining 17%
stake, which it considers may take about 12 months. This is inline with their
comments on the 1Q11 earnings call on a delisting of Patni being their first
priority. (2) With the exit of top executives from Patni, we believe the
transition has potential to lead to near-term delivery disruption and impact
on client relationships. (3) Management reiterated its intention to form a
front-end entity under the ownership of iGate, which will combine the sales
forces of the companies as part of joint go-to-market and will own all the
new deals won by them. Mgmt also said there may be a transfer pricing
agreement between them to allocate revenues, similar to HP or Oracle. We
believe this could be negative for Patni if it were squeezed out on the
pricing arrangement, similar to the HP-Mphasis master service agreement.
Implications
We reiterate our Sell rating on the stock as we believe the transition phase
may create a period of flux over the medium term and remain an overhang
on the stock. We place our target price under review pending further clarity
on the shape of the front end organization combining Patni and iGate’s
sales forces and the potential implications on Patni from this.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Patni Computer Systems Ltd. (PTNI.BO) Rs377.60
Negative News Equity Research
Patni acquisition completed; top executives replaced, reiterate Sell
News
In a press release yesterday, iGate announced completion of its acquisition
of Patni Computer Systems, with the buyout of the promoters (45.6%),
General Atlantic (17.4%) and a 20% mandatory tender offer to public
shareholders, which was fully subscribed — taking iGate’s stake to 83%.
iGate declared that both iGate and Patni will continue to exist as separate
listed entities and will work together, but on an independent basis, on an
integration exercise, in the best interests of their respective stakeholders.
The Board at Patni has been reconstituted with Jai Pathak appointed as
Chairman and Phaneesh Murthy as CEO of Patni. Jeya Kumar, CEO, has
stepped down and Surjeet Singh, CFO, will step down after 31st May 2011.
Analysis
(1) iGate stated Patni will continue as a separate listed entity. However, in
the concall, iGate suggested it might look to acquire the remaining 17%
stake, which it considers may take about 12 months. This is inline with their
comments on the 1Q11 earnings call on a delisting of Patni being their first
priority. (2) With the exit of top executives from Patni, we believe the
transition has potential to lead to near-term delivery disruption and impact
on client relationships. (3) Management reiterated its intention to form a
front-end entity under the ownership of iGate, which will combine the sales
forces of the companies as part of joint go-to-market and will own all the
new deals won by them. Mgmt also said there may be a transfer pricing
agreement between them to allocate revenues, similar to HP or Oracle. We
believe this could be negative for Patni if it were squeezed out on the
pricing arrangement, similar to the HP-Mphasis master service agreement.
Implications
We reiterate our Sell rating on the stock as we believe the transition phase
may create a period of flux over the medium term and remain an overhang
on the stock. We place our target price under review pending further clarity
on the shape of the front end organization combining Patni and iGate’s
sales forces and the potential implications on Patni from this.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
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