Thursday, 20 November 2008

IBM, Wipro in fray for Polaris stake

With the market abuzz with the possibility of Citigroup's plans to sell the 43 per cent stake in the Polaris Software, it seems like othe IT majors are getting ready for buying stake in the Chennai-based financial software firm.

NDTV has learnt from sources that IBM could be a clear frontrunner along with Wipro. The negotiations could be at Rs 60 per share which is double the current market price. Both of these companies are keen to acquire stake in Polaris as the firm offers unique retail banking solutions.

But a deal will only go through if Polaris chairman and managing director Arun Jain relinquishes control and his board seat. Jain has an agreement clause on his side that gives him full control of the company irrespective of his holdings.

On Thursday Jain dismissed any moves by Citi to sell their stake in the company. While reacting to stake dilution reports, he said Citi cannot move to dilute its investment without the prior approval of Polaris' management.

But with global losses mounting this is one Citi which clearly has lost its sleep. The firm needs cash so just one month after it sold off its captive BPO, cashing out of Polaris makes sense.

Citigroup along with its wholly-owned subsidiary Orbitech owns a little over 43 per cent stake in Polaris is on the block. And such a move would automatically trigger an open offer for another 20 per cent stake.

If successful it would mean the others apart from the promoters will hold 63 per cent stake translating to a buyout! The promoters currently hold 29 per cent in the company.

Sources have also told NDTV that it is a matter of time and both Citi and Arun Jain are working out a framework where he can cede control and take a non-executive chairman role.

"The first option these companies like Polaris will want is to bring in a private equity pklayer and retain management control but if they cant they will eventually need to cede management control," said Dipen Shah, VP, Kotak PCG.

If the Polaris deal goes through then its a clear message for other mid cap IT companies. And analysts say it will trigger the much needed consolidation in the space.

As for Citi, well the word is out that they are selling out their entire IT portfolio and earn a quick buck.

Source: ndtvprofit

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