Virtusa rules out delisting of Polaris, retrenchment

The US-based software services and consultancy provider Virtusa Corporation will have Polaris Consulting and Services Ltd. as a listed entity on Indian bourses and look at merger options later if the situation warrants, said an official of the company.

The official of Virtusa ruled out any retrenchment at Polaris Consulting.

Ruling out any retrenchment of IT professionals currently on Polaris Consulting's rolls, Virtusa officials said Jitin Goyal, CEO and executive director of the Indian company, will head the global banking for the American company.

There is no conflict of interest between Virtusa and Polaris Consulting, Virtusa officials added.

As on September 30, 2015, Polaris Consulting had around 7,650 employees at 12 development centres.

On Thursday, Virtusa announced it has entered into a share purchase agreement with promoters and other shareholders of Polaris Consulting to acquire 53 percent stake in the Indian company.

The purchase price was Rs.220.73 per share of Rs. 5, the paid up totalling up to Rs.1,173 crore.

The American company will buy the shares from certain promoter entities led by Polaris chairman Arun Jain and certain other shareholders, including OrbiTech Private Ltd. (formerly known as Orbitech Ltd).

"We will run both the companies -- Virtusa Corporaton and Polaris Consulting -- as two publicly listed companies. We will go to the market as Virtusa-Polaris," Kris Canekeratne, chairman and chief executive officer, Virtusa, told reporters late Thursday.

When queried why merger with Virtusa or listing of Virtusa's Indian subsidiary through a reverse merger of Polaris Consulting were not considered, executive vice president and chief financial officer Ranjan Kalia said such options would be considered later if warranted.

"If it makes sense, we may merge the two companies," Kalia said.

Following the acquisition of 53 percent stakes from promoters and certain shareholders of Polaris Consulting, the Indian company will be treated as a subsidiary in the books of Virtusa.

Virtusa Corporation's subsidiary Virtusa Consulting Services has issued an open offer to other public shareholders to acquire 26 percent of outstanding shares.

Officials of both the companies hope the deal to get completed by the end of March 2016.

As a part of the acquisition deal, Citigroup Technology Inc. has agreed to designate Virtusa and Polaris Consulting as a preferred vendor for Global Technology Resource Strategy for the provision of information technology (IT) services to Citi on an enterprise-wide basis.

In addition, Polaris and Virtusa agreed to certain productivity savings and associated reduced spend commitments for a period of two years, which, if not achieved, would require Virtusa/Polaris to provide certain minimum discounts to Citi.

The parties agreed to amend Polaris' master services agreement with Citi such that Virtusa Corporation would also be deemed a contracting party and would assume, and agree to perform, or cause Polaris to perform, all applicable obligations under the master services agreement.

"Last two quarters 48 percent of Polaris Consulting revenue were from Citi. The customer is looking at cost savings. It is an opportunity to lock in the revenue," Goyal said.

A senior official of Polaris Consulting told IANS that savings can be delivered to Citi group and the areas have been identified.

"Once that plan gets implemented that many of the experienced resources currently deployed on Citi account can be redeployed and new business can be sourced and serviced," the official said not wanting to be identified.

Canekeratne said post acquisition, the expected cumulative revenue synergy is to the tune of around $100 million.

He said the revised composition of Polaris Consulting board will be decided in three to six weeks.