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Infy buys Citi's stake in Progeon for Rs 518 cr
(Times of India, The (KRT) Via Thomson Dialog NewsEdge) Apr. 21--BANGALORE, India -- In line with the trend among big IT players, Infosys Technologies has decided to buy out Citicorp International Finance Corporation's (Citi) 23 percent stake in its BPO subsidiary, Progeon.
Infy would buy all 8.75 million shares from Citi by paying nearly Rs 518 crore ($115.13 million). The consideration would be paid in cash and the transaction is likely to be completed by July 2006.
While Infosys may be walking the path that HCL and Wipro took some time ago, the announcement also comes at a time when the likes of MphasiS is set to become an EDS company.
Infosys is sitting on surplus cash to the extent of $1 billion (Rs 4,400 crore) and this buy out would not leave any dent on the company's performance for the first quarter.
However, the deal clearly speaks volumes about the thrust that Infy places on its BPO operations in order to pump up revenues. The Progeon brand would be retained for the time being, while the Infosys brand is likely to be used in a much open fashion in the future.
"Infy's call to buy out this stake is a statement to the market. It has shown that BPO is an important component. With this, Infosys can now look at better integrating its service offerings," Amitabh Chaudhry, CEO and MD of Progeon told ToI.
Agrees Sabyasachi Satpathy, research director at neoIT: "The idea is to be able to provide integrated IT and BPO services which will enable the suppliers to cross sell and upsell.
We have seen this kind of model being adopted by Wipro and HCL as well. This strategy also helps the companies to offer increased scope of services and enhanced client stickiness."
The amount paid by Infy for a 23 percent stake indicates Progeon's overall valuation to be in excess of $500 million. Progeon registered $85 million in revenues last year and has given a guidance of $125 million for this fiscal. It is over 7,000-strong.
Citibank and Infosys walk out as winners from this announcement. While Citigroup made $95 million on the deal (they bought the stake for $20 million and got back $115 million), Infosys could boast of having a key investor like Citi in its BPO business.
From a Citigroup perspective, Senapathy feels that it is only part of their legacy. "Historically, Citigroup have been spinning off their non-core businesses once they reach a critical scale and maturity. Examples like Polaris, iflex will prove the point. Citi's approach is to move out when the returns on these entities reach an optimum level," he added.
According to a BPO analyst, "Recent client deals have been struck on the back of offering a combination of IT and BPO services. Large companies -- take Accenture, IBM, Wipro etc -- have aligned their BPO services with their IT services."
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