Reuters: Regulatory News: IGate faces battle over Indian unit delisting plan

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IGate faces battle over Indian unit delisting plan Mar 23rd 2012, 18:33 Fri Mar 23, 2012 2:33pm EDT * IGate looks to delist at price below shareholder expectations * Activist investor Elliott owns 11 percent stake in Patni * IGate can increase its credit line to $260 mln -analysts By Nadia Damouni and Monika Shinghal NEW YORK/BANGALORE, March 23 (Reuters) - IGate Corp's plan to delist its Indian subsidiary has set the stage for a battle next week with shareholders, who fear that the price being offered to sell their shares in Patni Computer Systems is too low. Among the investors is hedge fund Elliott Management Corp, an activist shareholder that owns an 11 percent stake in Patni. A representative for the fund declined to comment. IGate, a maker of outsourcing software, bought a controlling stake in Patni for 503 rupees ($9.83) per share last year. The Fremont, California-based company now plans to buy the 19 percent it does not already own for a lower price. The deal last year valued Patni at $1.2 billion. Shares of Patni, which also makes software for business process outsourcing, trade in Mumbai and in New York. Last week iGate, which has a market value of nearly $1 billion, said it had raised a $215 million loan to buy the stake, indicating that it would only pay up to 450 rupees per share for the remaining Patni stake. IGate, which competes with companies including Infosys Ltd and Cognizant Technology Solutions Corp, declined to comment. "I am a bit curious to understand what iGate is trying to do but it is probably some sort of negotiating tactic to try and get the best price that they can get on delisting," one Patni shareholder said. "They shouldn't be so tight-fisted on the price." IGate may be trying to indirectly signal to the market that it can take on only so much debt before breaching its covenants, two analysts said. But shareholders and analysts said there is room to increase the loan to at least $260 million. Investors are betting that iGate will have to yield to shareholder pressure. Patni's shares have been trading around 498 rupees this week, although iGate Chief Executive Phaneesh Murthy has said if the delisting is too expensive, then the company will look at other alternatives. "Since iGate paid Rs 503 a share last year for buying a majority stake in Patni, the market is expecting the same price from the company now," said analyst Jagannadham Thunuguntla of SMC Global Securities Ltd. HIGH STAKES Delisting of Patni shares will start on March 28 through what is known as a reverse book-building process. Under the process, minority shareholders get the right to propose the price at which they will be willing to sell. The results come out after about a week. "Murthy has every right to reject the offer price discovered through the reverse book-building process. He is under no compulsion to go ahead with delisting if he thinks it is not a good price," Thunuguntla said. But the stakes are high for iGate. Analysts have said the delisting is in the best interest of iGate's shareholders, primarily because it will simplify its corporate structure and give it access to Patni's $300 million cash pile. If iGate decides to drop its plan, it will also have to offload a chunk of its stake to ensure public shareholding of 25 percent for Patni, under the guidelines set by Indian stock market regulator Securities and Exchange Board of India. That means iGate may have to shed about 9 percent of its stake in Patni - including American Depository Shares - under that scenario. If the delisting does not go through, iGate's stock price may fall by 8 to 10 percent, Thunuguntla said. IGate shares were up 0.8 percent at $16.72 on Friday afternoon on the Nasdaq. Patni ADR shares were up 2.8 percent at $19.65. Link this Share this Digg this Email Reprints

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