Finance and Economic

Indian mid-sized IT outsourcer Tech Mahindra won an auction to buy Satyam Computer Services Ltd, the company at the heart of India’s biggest corporate scandal.

Satyam said on Monday Tech Mahindra agreed to buy a 31 percent stake at 58 rupees per share — a 23 percent premium to Satyam’s last closing price. The bid edged out offers from engineering conglomerate Larsen & Toubro, widely seen as a front-runner, and private equity firm WL Ross & Co.

Tech Mahindra, in which Britain’s BT Group holds about 31 percent stake, will pay $351 million for 31 percent preferential allotment of new shares.

Satyam’s sale is likely to help restore confidence in India’s IT services sector at a time the global economic downturn has already slowed growth.

“Tech Mahindra will really have to act fast now and if they don’t act fast then client erosion will continue at Satyam,” said Tarun Sisodia, head of research at Anand Rathi Financial Services.

Three months ago, Satyam’s founder and chairman shocked investors by saying profits had been overstated for years, and put in doubt the survival of a company once ranked as India’s fourth-largest software services exporter.

The government quickly stepped in and sacked the board to limit damage to India’s once-shining IT services sector.

With the purchase, Tech Mahindra, the sixth-largest Indian outsourcer, will be better equipped to wrestle market share from leading local outsourcing rivals Tata Consultancy Services, Infosys Technologies and Wipro

() cash till payday.

Tech Mahindra, a unit of tractor and utility vehicle maker Mahindra & Mahindra, will have to make open offer for a further 20 percent of Satyam at a minimum price of 58 rupees a shares, valuing Satyam at about $1.1 billion on paper.

“If the winning bid had been more than 60 rupees a share then it wouldn’t have made any sense for the buyer. The 58 rupees offer is on fair value side,” Sisodia said.

The Satyam buy will help Tech Mahindra, diversify its services by reducing its reliance on the telecoms industry, analysts said.

Tech Mahindra shares surged by as much as 25 percent after Larsen & Toubro, which owns 12 percent of Satyam, was reported to have dropped out of the bidding, but trimmed gains to trade 15.3 percent higher at 368.95 rupees by 0900 GMT.

Satyam shares rose 5.8 percent to 49.90 rupees, after earlier jumping 16 percent to a nine-week high. The company was valued at roughly $675 million in the market.

UNCERTAINTY OVER VALUATION 

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