Citi to exit, captive BPO units no longer attractive

The captive outsourcing story is turning sour .. or so it appears with the latest market buzz that Citigroup is on its way to pull out of its local business process outsourcing (BPO) unit Citigroup Global Services (formerly eServe).

While Citigroup continues to maintain that "the bank's policy is not to respond to market speculation," industry sources say "it makes logical sense for Citigroup to exit the business since it's not core to its operations".

The BPO currently has close to 8,000 people spread over two centres in Mumbai and Chennai. Some of the names floating to acquire the business include IBM, Automatic Data Processing (ADS), Infosys, EDS, Genpact, Capgemini and private equity players like Blackstone and General Atlantic.

When contacted, Genpact denied comment saying that it is in silent period. While IBM and Capgemini, too, maintained the no-comment stance, a senior Capgemini official, on condition of anonymity, said: "We have studied Citi Global services, it seems to be a decent company and has a good set up." The official, however, was concerned about the valuation of the Citi's BPO arm, which market rumours pegged at $1-1.2 billion.

Read more in The Business Standard article.

IBM, ADP, Genpact, Infy in race for Citi’s BPO biz

The first round of bids for Citi’s business process outsourcing operations — Citigroup Global Services (formerly known as e-Serve) — is likely to be completed this week. A host of global IT companies and also private equity firms are said to be in the initial race. However, Citi is likely to look at selling part of its operations only to a strategic partner, given the sensitivities involved in the deal.

According to sources, IBM, Automatic Data Processing (ADP), Genpact, Infosys and private equity firms such as Blackstone and General Atlantic are in the race for Citi’s BPO business.

Citi is likely to follow the Genpact model, where it is likely to sell off over 50% stake in the BPO firm. It is, however, likely to retain a part of the stake in the firm so that they can not only get the benefits in case of a future listing but would also handhold the firm. According to sources, one of the main reasons that the group is looking at bringing in a strategic partner is to bring down the overall costs and not monetising the stake.

Read more in The Economic Times article.

Citi to invite bids for BPO arm stake

Citigroup has opened talks with prospective bidders, including IBM Corp. for selling a strategic stake in its Mumbai-based captive business process outsourcing (BPO) arm Citigroup Global Services Ltd, earlier e-Serve International.

While additional details of the stake sale plans weren’t available, based on current annual revenue estimates ranging from $300 million to $400 million (Rs1,230 crore to Rs1,640 crore), industry sources estimate the unit could be valued at over $1 billion.

Citigroup India chief executive officer Sanjay Nayar declined to comment on the development, saying the bank’s policy is not to respond to market speculation, but people familiar with the development and who didn't want their names used said, “Citi has started feeling the market for a strategic stake sale. The process has started and it may take a while before concluding the deal.”

In March 2004, IBM took over Bharti’s information technology operations in return for assured revenues of up to $750 million over a 10-year period. “There could be a similar arrangement whereby IBM would run Citi’s BPO operations for a fee. In addtion to that, it could pick up a strategic stake (in Citigroup Global Services),” this person said.

Read more in The Livemint article.

Patni scrip surges on IBM buyout buzz

The share price of Patni Computer Systems has surged over 8 per cent in the last two days on market buzz that IBM is in talks to acquire around 25 per cent in the company.

With Patni’s market cap at Rs 7,211 crore on close of trading today, the acquisition could cost IBM around Rs 2,000 crore.

Some investors are planning to offload their stake in the company. If IBM buys 25 per cent, it will have to make an open offer for an additional 20 per cent stake as per the Takeover Code of the Securities and Exchange Board of India.

After closing at Rs 476.55 on the Bombay Stock Exchange on Wednesday, the Patni stock rose to Rs 513.90 on Friday.

At present, the company’s Indian promoters — Ashok Kumar Patni and Gajendra Kumar Patni – hold 11.31 per cent in the company, while foreign promoters—Isolutions and Narendra Kumar Patni — hold another 14.77 per cent.Narendra Kumar Patni, who is also the chairman of the company, owns 1.53 per cent of the company, while Isolutions owns 13.24 per cent.

Read more in The Business Standard article.

Three firms in race for RComm's $1.5 bn deal

Telephony major Reliance Communications is believed to have short-listed three global IT companies – IBM, EDS and T-Systems – for its $1.5 billion outsourcing contract.

A high-level internal committee of the Anil Ambani group company is expected to finalise one of the vendors for the 10-year deal in 6-8 weeks, sources close to the development said today. A RComm spokesperson refused to divulge the names of the short-listed vendors. He, however, admitted that the company was in talks with leading IT services vendors, which include large global players.

US IT major IBM has a strong presence in India and had recently announced its intention of focusing on IT outsourcing contracts from the country. If finalised, this would be the second major contract for the company as the Big Blue had earlier bagged a $800-million outsourcing contract from GSM major Idea Cellular.

Texas-based Electronics Data Systems, popularly known as EDS, is a market leader in the US and Europe and has been providing IT services and support for the last 40 years. T-Systems, the subsidiary of German telecom major Deutsche Telekom, is also one of the major players in the IT sector with expertise in managing IT requirements for telecom companies.

Earlier, RComm’s Internal Committee had decided to outsource its information technology requirements for 10 years to a technology service provider. The company was planning to outsource its wireless, enterprise and international business, under a $1.5 billion deal that was considered as one of the biggest in the Indian telecom outsourcing sector.

The move is expected to reduce the company’s projected IT spends “significantly” and also enable it to remain asset light. Industry analysts opined that the company would save 20 per cent by outsourcing and would also enable it to concentrate on its core competencies.

RComm had earlier earmarked a capital expenditure of $2.5 billion for this financial year that would be spread across its three business segments – personal, enterprise and international.

RComm’s mobile business has a subscriber base of close to 30 million, growing by over a million subscribers every month for the last 10 months. The company also has a 50 per cent plus market share in the enterprise market with around 1,000 top corporates in its client list.

ITC Infotech could go public

ITC Infotech, an IT services company and fully-owned subsidiary of ITC, is planning to go public. Although no date has been finalised as to when the company is planning to hit the capital market, Y C Deveshwar, chairman, ITC said the company may opt for the bourses `at some point of time'.

ITC Infotech is a $64 million company with a headcount of over 4,200 employees. The tier-II firm competes with the likes of the global service providers like HP, IBM and Accenture and also tier-one Indian players for enterprise system integration solutions, infrastructure and testing services projects. Some of its clients include British American Tobacco, Abbey National Bank, Finnair, DHL, PTC and Unilever. Around five per cent of the company’s revenues come from ITC.

Read more in The Business Standard article.

IBM targets Indian firms for acquisition

After spending close to $5 billion for 13 acquisitions in 2006, IBM plans to keep up its accelerated pace of acquisitions this year and has earmarked Indian IT space as a key target region.The company’s acquisitions in 2006 were in the software space, an area where IBM is bullish about growth prospects in future as well.

The US-based IT giant is believed to have sounded its investment bankers to scout for potential targets in the country, which could include mostly small-to-mid sized software firms, although it is not averse to acquiring large companies at the right price.

Read more in The Business-Standard article.