iGate-Patni deal: Tax tangle may delay the deal by a week

A deal for a controlling stake in the country’s seventh-largest software exporter, Patni Computer Systems , could be delayed by one more week with some last-minute tax issues delaying a share purchase agreement between the promoters and iGate, several people close to the deal said. 

The tax issues relate to Narendra Patni’s holdings in Patni Computer, which are held through a US firm, Isolutions . “The issue cropped up about half-an-hour before the details were finalised, delaying the share purchase agreement,” said one of the people. iGate was earlier expected to announce the acquisition on Monday. 

The three Patni brothers, Narendra, Ashok and Gajendra, hold 46% in the company while private equity firm General Atlantic (GA) has 17% stake. They want to sell their entire 63% stake in the software exporter. Some of the Patni brothers and GA have made several unsuccessful attempts to sell their stake in the past. But this time, the deal is nearly done with iGate, the people said. 

iGate has already shortlisted Deloitte Haskins & Sells and HR firm Mercer to help with integration and restructuring after a formal announcement is made, said two officials familiar with the negotiations. iGate’s bid is backed by Apax Partners, which is putting in nearly $400 million. 

ET has learnt that Apax has listed a few conditions, such as performance guarantees that include delivering a minimum 15% business growth for the joint entity, which could be called Patni-iGate Corp. 

If it fails to meet performance benchmarks, Apax’s shareholding could go up. “If the performance clause is breached, iGate can end up becoming an Apax company,” the second person said. 

iGate is about a third the size of Patni with annual revenues of $252 million, giving the combined entity close to a billion dollars in revenues. Phaneesh Murthy is set to be the CEO of the joint entity, with a high likelihood of the current Patni Computer CFO Surjeet Singh being appointed CFO of the joint entity. 

The share purchase agreement for the 63% stake in Patni is expected to be around Rs 525 a share. The change in ownership will also result in an open offer to the public for another 20% of the shareholding. 

If the price paid to the promoters includes a non-compete fee, minority shareholders will not be entitled to it. “As we have seen in the case of the Vedanta-Cairn deal, Rs 405 per share is offered to the promoters. However, there was Rs 50 per share of non-compete fees given exclusively to the promoters. Hence, this results into Rs 355 per share for minority shareholders,” said Jagannadham Thunuguntla of SMC Global Securities. 

For General Atlantic, one of the early investors in the Indian tech story, the Patni exit will be among the first from its technology investments in the country. It had invested in Patni in 2002 at around Rs 133 a share. Shares of Patni ended marginally lower on BSE on Monday at Rs 469.60.