Tata Sons now holds 51 per cent share in CMC, while the Government of India holds 32.31 per cent and the public hold another 16.69 per cent
In 2004, the government divested its remaining 26.5 per cent stake to the public @ Rs.485 per share.
1/3rd revenue came from GOI & as part of the deal, for the next two years TCS is guaranteed government business.
CMC brings to the table its expertise in infrastructure development, its domestic orientation and its presence in very specialized areas of education and training. CMC growing @ 23% for last 5 years but Indian IT industry @ 45%- Untapped potential. In niche areas such as maintenance and support, which is an Rs450 cr. domestic market, CMC is the undisputed king with an overwhelming 70 per cent market share.
Continued.
For TCS, this acquisition provides it with an opportunity to consolidate its operations in India TCS implemented a performance-based pay structure in CMC where the variable pay is determined by an EVA (economic value analysis) model used by TCS The functional areas integrated were finance, HR, sales and marketing, services, R&D, and product integration CMC also had expertise in power and utilities and this helped TCS expand its practice in this area Both TCS and CMS had solutions for the stock exchanges
CMC had products for the logistics management that could be integrated with the industry solutions of TCS
Valuation
Reserve price Rs. 140.92 per share TATAs came out with a price of Rs. 197.73 per share This was a 40% premium, which was calculated using relative pricing method. This represented goodwill and would be shown in the balance sheet of TCS next year.
Disinvestment department came out with the valuation of CMC based of four methods:
DCF (for 100% equity): Rs. 213.5 cr. Asset valuation method: Rs. 37.6 cr. Balance sheet method : Rs.72.7 cr. Comparable companies : Rs.102.5 cr.
2 stage H-model
V= D0(1 + gt)/(r gt) + D0H(gs gt)/(r gt). H= t/2 = 2 CAPM= 18% gt= 8%
V= 211.46 cr.
Open offer
As per the requirements under the SEBI Takeover Code, the strategic partner had announced an open offer for acquiring shares from the market. Tata consultancy services' open offer for the shares of CMC has met with negligible response In response to this open offer, 96 applications were received for 18,561 shares, i.e., 0.12% of CMCs paid-up capital. Less than 1 per cent of the total public offering of CMC was turned in to TCS in the 45-day open offer period The open offer price was kept at Rs 281.26 per share.
It was the six-month average price under the SEBI takeover guidelines.
TCS stake in CMC now stands at 51.12 per cent.
CMC has a low floating stock of around 17 per cent (83.31 per cent is with the government) and it does not need much money to manipulate prices.
Post-acquisition performance
Performance Indicator Operating Revenue Domestic 448.53 640.27 +43% Financial Year 2001 Financial Year 2006 % change
International
Total Net Value addition EBITDA PAT Employee Strength Employee productivity CMC Share price
89.15
537.68 182.24 35.45 25.09 2862 53.06 236.65
118.52
828.79 287.56 44.08 44.11 3431 72.69 540.30
+111%
+54% +56% +24% +76% +20% +37% +129%
References
Brief Notes on Privatised Central Public Sector Enterprises (CPSEs)- Department of divestment, Ministry of finance. CMC stock price @ moneycontrol.com TCS stock price @ moneycontrol.com SEBI takeover guidelines, http://investor.sebi.gov.in/Reference%20Material/GuideSubstantial-E.pdf CMC share price hike needs probe: Shourie- TOI (3 oct 2001) Few click on TCS open offer for CMC- ET (18 Feb 2002) Rising prices may torpedo Tata's CMC bid ET (11 Dec 2001) Bhatnagar Mohini, (Oct 2001)TCS acquires CMC. NSE live quote data @nseindia.com Capitaline databases Our milestones @ cmcltd.com Presentation to analysts @ cmcltd.com CMC annual reports Baijal Pradip, Disinvestment in India: I lose and you gain, 2001 A painless privatization- (15 Oct 2001) TCS Media reports