Dubai: India's Mahindra Satyam will merge with its parent Tech Mahindra to create the country's fifth largest software services exporter with a combined revenue of more than Rs100 billion (Dh7.4 billion).

The merger of Mahindra Satyam with Tech Mahindra has been given approval by the boards of the two companies. The exchange ratio for the merger has been fixed at 2:17 which means that a shareholder holding 17 shares of face value of Rs2 each of Mahindra Satyam will be entitled to receive two shares of face value of Rs10 each of Tech Mahindra.

According to the merger scheme approved by both the boards, the merger is proposed to be undertaken through a court approved scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956.The arrangement will be subject to the approvals of the Bombay High Court at Mumbai and the Andhra Pradesh High Court at Hyderabad.

The merger will further be subject to various statutory approvals, including those from the shareholders and the lenders/creditors.

Feeling the pain

The combined entity expects to be in a better position to compete with rivals such as sector leader Tata Consultancy Services and number two exporter Infosys for large outsourcing contracts from global corporations, analysts said.

As per Tech Mahindra, the merger will result in more than 350 clients across different geographies and industrial sectors. Tech Mahindra has been feeling the pain inflicted by the retendering of contracts by its largest client British Telecom. Tech Mahindra will issue 103.4 million new equity shares, thereby increasing its outstanding equity shares to 230.8 million and its equity capital to Rs2.38 billion, Tech Mahindra said in emailed statement yesterday.

Sanjeev Hota, analyst at Mumbai's e-commerce site Sharekhan, said the mega merger created a highly diverse company with a presence in manufacturing, financial services, banking, telecom and retail. The takeover would result in cost savings and better competitiveness. It's favourable for both companies and India's IT sector will likely see more consolidation in the future.

Tech Mahindra bought a 42.7 per cent stake in Satyam in April 2009 when the group was on the verge of collapse following an accounting scandal.