iGate falls 11% after Patni deal

MUMBAI: Nasdaq-listed IT services provider iGate Corp was hammered by US investors and its shares fell 11% following its announcement to buy larger rival Patni Computer Systems for $1.22 billion on Monday. iGate said it is taking a $700 million debt and issuing equity of $270 million to private equity firm, Apax Partners, to fund the transaction.

Itcouldalsomakeapublicoffering of up to 10 million shares or increase the stock investment from Apax by another $210 million. The . 503.50-a-share offer is 9.4% higher than Patni’s closing price on January 7. iGate will pay $921 million to acquire 63% in Patni. It will also make a mandatory open offer to the public for another 20% of shareholding, which could take the acquisition cost up to $1.22 billion depending on the response to the offer.

The biggest risk for iGate, other than the high debt, is integration risk. There could also be worries of growth coming down. iGate has been growing well for the last few quarters but Patni has lagged. Loss of employees and the impact it could have on client retention is a concern," said an industry veteran . iGate is about a third of Patni’s size with annual revenues of around $250 million compared to Patni's $700 million. “It is a bold but risky move,” he said.