Leading IT major, Tata Consultancy Services (TCS), on Wednesday announced it would buy the outsourcing arm of Citigroup Global Services Ltd (CGSL) in an all-cash deal worth $505 million (Rs 2,417 crore).
The acquisition will help TCS get one of the largest IT-enabled services contract valued at $2.5 billion (Rs 11,965 crore) from Citigroup to provide outsourced services for nine-and-a-half years.
Formerly known as E-serve, Citigroup Global Services has an expertise in banking and financial services industries. It employs more than 12,000 people in India. The company is expected to generate revenue worth $278 million (Rs 1,334 crore) in the current year.
“The transaction will help us acquire new capabilities in the banking domain,” said S Ramadorai, managing director and CEO, TCS.
The new capabilities that TCS will acquire through this buyout will enable them to bid for larger banking contracts, investment-banking sources said.
“I believe they have already subtracted the financial crisis in the banking industry. They will look for larger banking deals as most banks intend to cut short staff strength and sell out their captive BPO units,” said a Mumbai-based investment banker.
TCS is a part of the $62.5-billion Tata group that has 96 companies in its fold and has been providing services to Citi since 1992. They hope to conclude the twin-deals by the year-end. TCS expects Citigroup Global Services revenue to start flowing in from the next quarter.
“This transaction is expected to help reduce operating expenses related to business processing and will allow us to focus on our core financial services competence,” said Don Callahan, chief administrative officer, Citi Group.
The all-cash deal to acquire CGSL will particularly help refurbish the financials of the US-based giant, which is reeling under $61-billion credit related write-downs.
TCS shares were down 5.07 per cent to close at Rs 546.60 at the BSE on Wednesday when the benchmark sensex was down 3.14 per cent to close at 11328.36.