Tough negotiations between a clutch of private equity companies and the brothers at the helm of Patni Computer Systems and a decision by General Atlantic Partners to exit have helped remove some of the major hurdles to a successful sale of stake in the company, people familiar with the matter said.
Narendra Patni, the chairman and CEO of India's sixth-largest software services exporter, will become the non-executive chairman once the sale is concluded, while the incoming private equity investor will get to enjoy substantial management and operational rights.
General Atlantic Partners, which holds about 16 per cent in the company, has also decided to exit completely, making the sale process easier to conclude. Patni Computer has been in play for a better part of 2007 after Ashok and Gajendra Patni, Narendra's brothers, decided to sell a substantial portion of their 28 per cent stake.
Leading private equity company such as Carlyle, Cerberus and Blackstone have shown interest in buying into the company and five names have already been shortlisted. But the process got delayed due to lack of clarity over Narendra Patni's role and the rights of the incoming investor were holding up the transaction. Patni, who built the company from scratch, owns about 14 per cent. He also enjoys certain key rights and powers.
The PE firms were reluctant to do a deal without getting major rights of their own. They were also not happy with just the stake of Ashok and Gajendra Patni, about 15-20 per cent. This would place them on more or less on par with General Atlantic and Narendra Patni, an uncomfortable position for any PE fund.
The new agreement, whose final details are being worked out, answers most of the issues to the private equity firm's satisfaction. Patni will get to keep some of these rights. He will also retain his stake but will no longer be the sole deciding authority on operational and management issues.
The new investor will have the powers to appoint a new CEO and will be responsible for future growth. The new investor will also get a chance to hold a substantial stake due to GA's decision to exit. Adding GA's stake to what is on offer will give the new investor about 35-40 per cent in the company making them a large shareholder. An open offer, mandatory under the Securities and Exchange Board of India (Sebi) guidelines, will increase the holding further.
"Things are progressing well, the deal may be concluded in a month's time," according to the source. The deal is likely to be concluded at price of Rs 650-675 per share. "It is our policy not to comment on our portfolio companies or our plans as investors," Pat Hedley, a spokesperson for GA said. The Patni Computer spokesperson maintained, "The company has not been informed by any of its large investors of their intent to offload any stake."
Narendra Patni, the chairman and CEO of India's sixth-largest software services exporter, will become the non-executive chairman once the sale is concluded, while the incoming private equity investor will get to enjoy substantial management and operational rights.
General Atlantic Partners, which holds about 16 per cent in the company, has also decided to exit completely, making the sale process easier to conclude. Patni Computer has been in play for a better part of 2007 after Ashok and Gajendra Patni, Narendra's brothers, decided to sell a substantial portion of their 28 per cent stake.
Leading private equity company such as Carlyle, Cerberus and Blackstone have shown interest in buying into the company and five names have already been shortlisted. But the process got delayed due to lack of clarity over Narendra Patni's role and the rights of the incoming investor were holding up the transaction. Patni, who built the company from scratch, owns about 14 per cent. He also enjoys certain key rights and powers.
The PE firms were reluctant to do a deal without getting major rights of their own. They were also not happy with just the stake of Ashok and Gajendra Patni, about 15-20 per cent. This would place them on more or less on par with General Atlantic and Narendra Patni, an uncomfortable position for any PE fund.
The new agreement, whose final details are being worked out, answers most of the issues to the private equity firm's satisfaction. Patni will get to keep some of these rights. He will also retain his stake but will no longer be the sole deciding authority on operational and management issues.
The new investor will have the powers to appoint a new CEO and will be responsible for future growth. The new investor will also get a chance to hold a substantial stake due to GA's decision to exit. Adding GA's stake to what is on offer will give the new investor about 35-40 per cent in the company making them a large shareholder. An open offer, mandatory under the Securities and Exchange Board of India (Sebi) guidelines, will increase the holding further.
"Things are progressing well, the deal may be concluded in a month's time," according to the source. The deal is likely to be concluded at price of Rs 650-675 per share. "It is our policy not to comment on our portfolio companies or our plans as investors," Pat Hedley, a spokesperson for GA said. The Patni Computer spokesperson maintained, "The company has not been informed by any of its large investors of their intent to offload any stake."
Shares of Patni Computer rose by 7.5% or Rs 27.45 to Rs 391.40 on Monday, as compared to the Sensex that was up 2%. With revenues of $579 million and a net profit of $ 59 million in fiscal 2006, Patni is among the top ten software exporters from the country, according to the Nasscom rankings.
Of late, the company has also been pretty aggressive in pursuing an inorganic growth strategy and has announced two acquisitions in the month of July alone, one of life sciences services company Taratec and the other of telecoms consulting specialist, Logan-Orviss.
Of late, the company has also been pretty aggressive in pursuing an inorganic growth strategy and has announced two acquisitions in the month of July alone, one of life sciences services company Taratec and the other of telecoms consulting specialist, Logan-Orviss.
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