Wednesday, October 8, 2008

Tata Consultancy to buy Citi arm for $505 mn

Notwithstanding the crisis in the global financial system, leading Indian information technology major Tata Consultancy Services (TCS) Wednesday said it will buy the outsourcing arm of Citigroup for $505 million.

In addition to the acquisition, TCS has entered into a $2.5 billion pact with US-headquartered Citigroup to provide outsourced services for a period of nine-and-a-half years, said a statement issued by the two groups.

The all-cash deal to acquire Citigroup Global Services, formerly called E-serve International, will particularly help refurbish the financials of the US-based giant, which is reeling under $61-billion credit-related write-downs.

The outsourcing arm of Citigroup, which has expertise in banking and financial services industries, employs more than 12,000 people in India, who are expected to generate revenues worth $278 million in the current year.

"This is a great transaction that benefits all parties - Citi, our customers, our employees and TCS," said Don Callahan, chief administrative officer of Citi.

"This transaction is expected to help reduce operating expenses related to business processing and will allow us to focus on our core financial services competence,” he added in a statement.

TCS, which is part of the $62.5-billion Tata group that has 96 companies in its fold, had been providing services to Citi since 1992, and hopes to conclude the twin-deals by the fourth quarter of 2008.

“This acquisition of Citigroup Global Services has two immediate strategic benefits for TCS,” said N. Chandrasekaran, executive director of the Indian company.

He listed the benefits as avenues to gain expertise in banking and financial services industries and integrate their existing products and solutions for large financial institutions and banks.

“We welcome Citigroup Global Services professionals into the TCS family, where they will be able to participate in the company's new growth endeavours.”

According to analysts on Wall Street, the money expected into the coffers of Citi will likely help its Indian-born chief executive Vikram Pandit to fund acquisitions like Wachovia Corp's branch operations.

Tata Consultancy employs more than 115,000 information technology consultants in some 50 countries, generating revenues worth $5.7 billion in the fiscal year ended March 31, 2008.

Despite the announcement of the mega deal, the shares of Tata Consultancy were down 6.23 percent on the Bombay Stock Exchange, as part of the overall meltdown of Indian equities Wednesday.

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