US telecom provider AT&T has picked up an 8.07% stake in Tech Mahindra from its promoters in return for giving the company a certain amount of business over a period. According to a filing on the NSE, AT&T purchased about 98.7 lakh shares in an off-market transaction at $3.5, or about Rs 162, per share.
An agreement signed between the two firms in May 2005 gave AT&T the option to purchase shares in Tech Mahindra if it met certain revenue targets.
“AT&T became eligible to exercise these options because it met the revenue milestones. This is not a new transaction, it has been disclosed in our IPO prospectus,” said Sonjoy Anand, CFO, Tech Mahindra. AT&T is Tech Mahindra’s second-largest customer, contributing about 15% of its revenues. “There is no fresh issue of capital, and, therefore, no equity dilution. The shares were held by Mahindra BT Mauritius and AT&T had options against these shares,” added Mr Anand.
TechM has followed the practice of giving cash or equity stake in return for large contracts, especially with its largest client, British Telecom. The approach has drawn flak from analysts. In the December 2009 quarter, BT re-negotiated some of its contracts with TechM at a lower pricing and paid an upfront compensation of Rs 968 crore in lieu of it. Rather than treat it as extraordinary income, TechM chose to amortise this upfront fee and book it as revenue over many quarters.
“In this case, in return for certain business commitments TechM gave AT&T the right to take a certain stake in the company,” pointed out an analyst, who did not want his name mentioned.
Had AT&T chosen not to exercise the options, they would have expired in July 2010. TechM’s current market cap is Rs 11,077 crore. The purchase price of Rs 162 values TechM at Rs 2,025 crore. Shares of Tech Mahindra closed 1.6% down on BSE at Rs 910.
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