iGate agrees to pay Rs. 503.50 a share to Patni?

MUMBAI, INDIA: U.S. software firm iGate, backed by private equity firm Apax Partners, has agreed to buy a majority stake in India's Patni Computer for $862 million, two sources with knowledge of the matter said, marking one of the largest deals in India's technology sector.

iGate and Apax have agreed to pay 503.50 rupees a share for a 63 per cent stake in Patni, the sources said.

Small and mid-cap companies in the IT services sector have been grappling with tepid demand, high attrition rates amid tough competition from larger rivals and a rise in expenses. Merging would allow mid-sized companies to increase scale and target bigger clients.

"There is scope for consolidation in this sector and it will happen," said Rakesh Rawal, head of private wealth management at Anand Rathi Financial. "Smaller players will have to get together for value creation," he said.

The price of Rs. 503.50 rupees a share, which does not include fees for a non-compete clause in the agreement, reflects a premium of 9.4 per cent over Patni's closing price of 460.10 in Friday trade.

Patni shares were up 1.6 per cent at 467.35 rupees in Monday mid-day trade on the Bombay Stock Exchange.

"It's not a price one would be gung-ho about, for sure," said Tejas Doshi, head of research at Sushil Finance in Mumbai. "Investors in Patni should have got a much better price. But from iGate's perspective, its an asset worth buying at this price," he said.

Apax will invest about $500 million in iGate for the acquisition. iGate will also take a loan of another $500 million from Standard Chartered and Deutsche Bank for the deal, said the sources, who were not authorised to comment publicly on the deal.

iGate has agreed to make an open offer for an additional 20-per cent to Patni's minority shareholders following the deal.

iGate said late on Sunday that it would hold a news conference at 0700 GMT on Monday, at which it is expected to announce the deal. Standard Chartered advised iGate on the deal.

Officials at Patni, iGate and Standard Chartered were not immediately available for comment.

The stake is being sold by Patni's three founding brothers, who collectively own 46 per cent, and private equity firm General Atlantic, which owns 17 per cent, the sources said.

Patni, a mid-sized IT services company also listed in New York , provides technology outsourcing services to industries such as insurance, telecoms, utilities and retail.

Its clients include General Electric Co , Hitachi and Procter & Gamble Co's Gillette brand.

Talks to sell a stake in the software services exporter had been going on for about two years. A deal had been expected to be announced a week ago, but was delayed due to valuation gaps with potential buyers, sources previously had told Reuters.