EDS' offer to MphasiS: a `win-win' deal for all

Srinivas R

BANGALORE: Plano, Texas-based EDS' open offer to buy majority stakes in MphasiS BFL will bring cheers to Barings Private Equity Partners.

Barings, which has a 35.6 per cent stake in MphasiS BFL, wanted to sell them off in 2004-`05 itself. However, the offers it got were no-where near the expected Rs 400 per share.

Industry sources said that Temasek and Hinduja TMT had then offered around Rs 260 per share. Understandingly, Barings declined the offer.

With EDS' proposal to acquire a controlling stake in MphasiS for Rs 204.5 per share, Barings has all the opportunities to sell its stake. EDS' valuation of MphasiS stakes is well above Barings' expectations.

In 1998, with the purchase of Bangur Company's stake in loss-making BFL Software, Baring became part of MphasiS BFL. Subsequently, Jerry Rao became its chief.

However, since Barings induction to the MphasiS BFL board, it seemed that investors -- than the management -- mostly controlled the company. Most companies, which have private equity investors, will have some kind of `interferences' from its investors. However, in the case of MphasiS BFL, the interference was a bit more than usual.

“They had a major say in all the matters,” a source privy to the state-of-affairs in MphasiS told CyberMedia News.

Business and technology solutions provider EDS, which was desperately looking for acquisitions in India to counter IBM India, found an easy target in MphasiS.

“The main reason was besides investors, even its (MphasiS') promoters were looking at selling their stake,” said a financial analyst who was closely tracking MphasiS. In fact, Jerry Rao, chairman and CEO of the company, had sold his 2.6 per cent stake in September 2005.

ChrysCapital had also sold its near 6.5 per cent stake in MphasiS for Rs 130 crore through the secondary market route.

There is another view to this. Industry sources said all was not well between the investors and the top management of the company.

“There were some issues between the management and investors in MphasiS. Some investors were not happy with Jerry Rao,” a source said on condition of anonymity.

However, Rahul Bhasin, director, MphasiS, and managing partner, Barrings India Private Equity, denied this.

"In case, there were any differences as reported, we have sufficient holding in the company to change the executive; it is not so complicated. Thus, it is obviously not true," he said.

Meanwhile the source added, “EDS' offer is timely. Already there was a change in the management of the company since the second half of 2005.”

This offering is seen as a `win-win' situation for all. After today's MphasiS board meeting, Jerry Rao said: "We are supportive of this transaction and look forward to its successful closure. We are very excited about the opportunities for growth and the potential for enhancing our customer offering."

It is learnt that MphasiS is likely to retain its name. Reports said Rao would move to EDS as head of its global financial practice.

© CyberMedia News