Blackstone to invest $2.8 bn in Mphasis

Bengaluru: Global private equity major Blackstone on Monday said funds managed by the PE firm has entered into a definitive agreement to buy majority stake in IT services firm, Mphasis. As part of the deal, it has made an open offer to acquire additional 26 per cent stake in the mid-tier IT services firm Mphasis Ltd for Rs 8,262 crore (around $1.10 billion).

A wholly-owned subsidiary of the Abu Dhabi Investment Authority (ADIA), UC Investments (Office of the Chief Investment Officer of The Regents, University of California) and GIC will co-invest along with Blackstone. The offer price is fixed at Rs 1,677.16 per share, which is around three per cent less than the market price of Mphasis' share on Monday. In total, Blackstone has committed up to $2.8 billion to acquire a controlling stake in Mphasis.

Currently, Blackstone's another fund Marble II Pte Ltd holds 56 per cent stake in the mid-tier IT services firm. As per the proposed structuring of the deal, two funds of Blackstone- Blackstone Capital Partners Asia and NQ LP and Blackstone Capital Partners (CYM) VIII AIV along with ADIA, GIC and UC Investments will acquire up to 55.31 per cent stake from current promoter Marble II Pte Ltd. According to market regulator Sebi regulations, this acquisition will trigger a mandatory open offer under which these funds plan to acquire an additional 26 per cent in Mphasis. However, the total shareholding of these funds post open offer (assuming all shares are tendered) will be around 82 per cent after completion of this transaction.

"As any publicly listed firm has to maintain 25 per cent public shareholding, the purchase of stake from Marble II Pte will vary depending on the 75 per cent threshold level. If the open offer is fully subscribed, then purchase of shares from Marble II Pte Ltd will be lower to meet the 25 per cent public float norm," said a company source. In the exchange filing, Mphasis also said that Marble II Pte will be reclassified as public shareholder with no board position and having no power to appoint key managerial personnel in the Bengaluru-headquartered company.

Sources also said that Blackstone has the liberty of offloading the remaining stakes of Marble II Pte in the open market at its intended price range. "It is possible. That's a call that the fund house may take at opportune time," they added. Along with the open offer, the blended purchase price of the acquiring entities will vary between Rs 1,452 to Rs 1,497 per share (12-16 per cent premium to 12-month average price and 3-6 per cent discount to 6-month average price) and the purchase consideration will vary between Rs 152 billion to Rs 210 billion (or, approximately $2.0 billion to $2.8 billion).

"We are gratified to continue our partnership with Blackstone, both as a leading investor as well as our client. We believe Blackstone's sustained strategic partnership will help the company accelerate its growth and scale new heights. Sovereign and pension funds co-investing is a testimony of long-term commitment and a vote of confidence of a marquee set of shareholders," Nitin Rakesh, CEO and Executive Director of Mphasis said. In 2016, Blackstone acquired Hewlett Packard Enterprise's 60.5 per cent stake in Mphasis with a market cap of about $1.4 billion. In five years, the IT firm's market cap has grown three fold to around $4.5 billion now. "IT and software services have been strong sectors for value creation for the last two decades. This investment enables us to continue creating value for the long term with continuity in the management team and the board and provide additional resources to further accelerate the company's growth momentum," said Amit Dixit, Co-Head of Asia Acquisitions and Head of India for Blackstone PE. Similarly, commenting on the deal, Satish Swamy, Senior Managing Director Asia and Global Rates, UC Investments (The Regents of the University of California), said that it has known the company and the management team for a few years and are delighted to now become investors.

The Blackstone deal

♥ The PE giant makes an open offer to acquire 26% additional stake for $1.1 billion

♥ The rest fund is earmarked to buy stake (up to 55.31%) from existing promoter Marble II Pte- another Blackstone fund.

♥ Abu Dhabi Investment Authority (ADIA), UC Investments & GIC will co-invest in the current round

♥ Marble II Pte will be reclassified as a public shareholder with no board position

♥ The share price of Mphasis ended 1.4% up in NSE at Rs 1,720 on Monday