EDS bidding $380 mln to control MphasiS

By Jim Finkle

BOSTON - Information-technology services company Electronic Data Systems Corp. said on Monday it would make a $380 million tender offer for a majority stake in computer services provider MphasiS BFL Ltd.

Acquiring control of MphasiS, a mid-sized Indian software and back-office service firm, would boost EDS's headcount in India to 14,000 from 3,000. It has lagged far behind bigger rival International Business Machines Corp., which employs 38,500 there.

Both U.S. companies are expanding in India to take advantage of a large pool of highly skilled technical workers who are paid lower wages than in the United States and western Europe.

"For EDS this is about keeping up with the Joneses. In this case, the Joneses are IBM," said Chad Hersh, an analyst with Boston-based research and consulting firm Celent.

MphasiS provides software development, builds and manages computer systems, runs call centers, and provides other services such as processing of paperwork for foreign companies. It has about 12,000 employees, of whom 11,000 are in India.

EDS, based in Plano, Texas, said it would formally announce its open offer to acquire 83 million shares, or a 52 percent stake in the Bangalore-based company, on Tuesday.

It offered to pay 204.5 rupees, or about $4.58, in cash for each MphasiS share and said it will not accept any tender offer for less than 83 million shares.

The price offered is below the stock's closing price of 215.80 rupees in Mumbai on Monday. EDS shares rose 13 cents to $26.96 on the New York Stock Exchange in Monday afternoon trade.

The MphasiS board will meet Tuesday to review the offer, the company said in an email. The statement also said that "management's response to the offer is positive."

In January, India's Economic Times reported that Baring Private Equity Partners (India) Ltd. was in talks to sell its 35 percent stake in MphasiS to EDS. Baring had tried to sell its stake in MphasiS last year, but called off the plans in August due to differences over the pricing.

A person familiar with Baring's plans said the firm planned to participate in the tender offer as long as the EDS bid had backing from the management of MphasiS.

EDS spokesman Travis Jacobsen declined to say whether the company had discussed the matter with Baring.

MphasiS would be EDS' first acquisition in more than two years. It would also be the first in a multiyear acquisition drive that the company has said will focus on companies in India, along with China, South Korea and central Europe.

"It's the right strategy for EDS. IBM's significant presence in India gives IBM a pricing advantage that you can't compete against," Hersh said. "That's gotta scare EDS."

IBM said last month that it was opening a new global services center in Bangalore, a hub for offshoring by global companies.

Jacobsen said that in addition to acquiring control of MphasiS, EDS plans to hire another 3,000 employees in India.

The MphasiS Web site lists IBM as one of its business partners.

EDS has a cash pile of about $3 billion and expects to generate another $800 million to $1 billion in free cash flow this year, co-Chief Operating Officer Steve Schuckenbrock said at the Reuters Global Technology, Media and Telecoms summit in February.

Schuckenbrock said the company had more cash than it needed, and EDS would prefer to have reserves in the "couple billion-dollar" range.

(Additional reporting by M.C. Govardhana Ranga in Mumbai.)