HCL Tech to buy Volvo's IT biz for $138 mn

HCL said it has signed a letter on intent with the Volvo Group for undertaking its infrastructure and operation services

HCL Technologies will buy Swedish commercial vehicles major Volvo Group's external information technology business for $138 million (around Rs 895 crore) in an all cash deal. Volvo Group will also outsource its IT infrastructure operations to HCL Techn_ologies for an undisclosed contract value for five years.

The Volvo Group and HCL have signed a Letter of Intent, awaiting the signing of the final contract, Volvo Group said in a statement from Stockholm. In India, HCL Technologies said in a filing to the BSE that it will be "acquiring from the Volvo Group its external IT business relating to provision of IT infrastructure, mainframe service and application operation services for an all cash consideration of SEK 1.1 billion ($138 million)".

Volvo group derived revenue of SEK 1.6 billion ($190 million) from external customers during the last 12 months. HCL further said it has signed a letter on intent with the Volvo Group for undertaking its infrastructure and operation services. The total contract value which is for five yeas is not disclosed. As part of the deal, Volvo said: "Approximately 2,600 Volvo personnel globally will be affected by the transaction. They will be given the offer to move over to HCL Technologies and will continue to work closely with their colleagues in Volvo's IT services division."

The transaction is to be closed during the second quarter of 2016 and will provide both cost savings and a capital gain, Volvo said. In conjunction with the closing, the Volvo Group's operating income and net financial debt are expected to be positively impacted by about SEK 900 million. Volvo's CFO and Acting President and CEO Jan Gurander said: "I am convinced that this will benefit personnel, suppliers and customers."

He further said: "An equally important aspect is that we will have a partner who can ensure that the operation of our IT infrastructure is developed in a manner that will enable us being at the forefront of our industry." HCL Technologies President and chief executive officer Anant Gupta said the company's engagement with Volvo will give the opportunity to create additional value for "such a forward looking organisation."

"It is also pleasing to note that skilled personnel will be joining HCL and our culture will further flourish globally," Gupta added.

Shares of HCL Technologies were trading at Rs 859.50 per scrip in the afternoon trade, up 0.27 per cent, from the previous close on the BSE. In April, the Volvo Group announced its intention to find an external partner to assume responsibility for its external IT business and its IT infrastructure operations.

The transaction is part of the efficiency programme announced previously, which aims to reduce the group's structural costs with 10 billion SEK.

"This has been a thorough process and I am pleased with the outcome. Not only will our cooperation with HCL Technologies provide significant cost-savings. We will also make a capital gain when the contract is signed," Gurander said.

Under the deal, HCL Technologies also aims to transition and deliver services to all existing customers of Volvo IT external business, the statement said.