WNS takeover talks run into valuation hurdle

BPO firm tells SEC it will not pursue discussions with suitors

The high-profile race to buy India’s second-largest business process outsourcing (BPO) company, WNS Holdings, ended abruptly today after the company informed the US Securities and Exchange Commission (SEC) that it had decided to stop discussions with interested parties regarding a possible change of control.

The New York Stock Exchange-listed WNS, which has been in talks with several high-profile buyers for six months, did not provide a reason. Sources familiar with the developments said the talks with potential buyers hit a valuation hurdle.

“The board of directors of the company has completed its consideration of the expressions of interest (EOI) received from interested parties regarding a possible change of control transaction, and has decided not to pursue further discussion,” the company said in its SEC filing.

The board added that the management was focused on performance, which continued to be in line with the guidance reiterated in the last earnings call.

More than eight players had evinced interest in acquiring the 50.12 per cent stake of private equity (PE) investor, Warburg Pincus, in WNS. These include IT and BPO players like Genpact, Exl Services, HCL Technologies, Wipro, Cognizant and Quatrro (which has teamed up with PE players). PE players like Kohlberg Kravis Roberts & Co (KKR), Bain Capital, and Carlyle were also understood to be in the fray.

In August, the company informed the SEC that it had received expressions of interest from various parties regarding possible change of control transactions, though it had not reached any definitive agreement.

WNS closed financial year 2009 with a revenue of $386.4 million (Rs 1,855 crore). Sources say firms, till date, have bid in the range of $400-600 million (Rs 1,940-2,900 crore). But WNS was not content, they add.

The bidding process started in June when the stock was around $9 per share. Bidders are understood to have bid at $11-13 a share.

From mid-August, however, the stock has been hovering at $15. At this price, Warburg’s 50.12 per cent stake, which represents 21.3 million shares, would be valued at $319.5 million (Rs 1,550 crore).

“Buying the stake at that level is not possible. If the deal takes place, we would look for a huge discount to the current value,” said a senior executive of a firm interested in the WNS stake.

“Since the share prices have moved up, it has led to an increase in valuation of the company,” agreed an investment banker close to the development. The winner would have to make a mandatory open offer in the US.

A source close to the development said it would make more sense for Warburg to offload its entire stake in the open market rather than sell at a lower price. “But first,” he points out, “WNS will have to call off the deal which is why the announcement makes sense.”

Other than Warbug Pincus, the other shareholders in the company are Nalanda India Fund (12.22 per cent), Columbia Wagmer Asset Management, L.P (9.98 per cent), FMR LLC (9.43 per cent) and Tiger Global Management (6.6 per cent).