Birla Group to acquire Bull's stake in PSI

MUMBAI: The Aditya Birla Group, one of India's largest conglomerates, on

Monday announced it was buying a controlling stake in PSI Data Systems,

significantly augmenting its modest presence in the "new economy"

sector.

Indian Rayon and Industries, a group company, will acquire 50.4 per cent of

software services company PSI Data Systems from France's Groupe Bull for Rs 710

million ($15.1 million), at Rs 186.80, per share. PSI's shares were battered on

the Bombay Stock Exchange on Monday, falling 16 per cent to end at Rs 134.

Dealers said the market had expected a higher offer price of around Rs 230.

Shares in Indian Rayon closed 1.65 per cent higher at Rs 81.55. The benchmark

Bombay exchange index closed 1.87 per cent down amid a general sell-off of tech

shares. The AV Birla Group has traditionally been strong in "old

economy" sectors, such as cement, aluminum and textiles.

Loss-making Groupe Bull announced in April its intention to sell its stake in

Bangalore-based PSI as part of a strategic review. Indian Rayon will also make

an offer to PSI's public shareholders to buy a further 20 per cent of the

company, in keeping with India's takeover regulations. This would take Indian

Rayon's stake in PSI to 70.35 per cent, worth Rs 992 million.

Cash rich



The diversified Indian Rayon was chosen as the acquiring vehicle as it had cash
that need to be re-deployed into high growth areas, something that was not

coming from existing business despite its competitiveness, said group chairman

Kumar Mangalam Birla.

"While they throw out cash, they don't have the opportunity to re-deploy

that cash for growth," Birla said. The company has businesses in viscose

fibre yarn, insulators and carbon black. Previously, the group's presence in

information technology had been restricted to Birla Technologies - a subsidiary

of the diversified Grasim Industries.

Birla acknowledged the group would eventually have to consolidate its

information technology businesses but said it was too early to talk of concrete

plans for integration.

Easy entry



PSI presents a profitable and clean platform entry into information
technology services, group president (corporate strategy and business

development) Dev Bhattacharya told reporters at a briefing. "Not a very

high profile company (PSI) - middle class, but it had very good pedigree and

credentials in the market place," he said.

Groupe Bull first invested in PSI Data Systems in 1988, when it was

predominantly a hardware company. By 1996 it had sold most of its loss making

manufacturing facilities and switched the focus to software services. Half of

PSI's revenue comes from Europe, unlike other Indian software companies, which

depend heavily on the United States.

Bhattacharya said Bull, which accounts for 30 per cent of PSI's revenue, had

promised to give it "preferred vendor" status for the next three

years, but added that the PSI management was working to diversify its client

base. He estimated PSI's revenues would grow 30-35 per cent in 2001 to over Rs

830 million in December 2000. It reported a net profit of Rs 182 million in

2000.

(C) Reuters Limited 2001.