Mumbai: After many a false alarm and multiple rounds of negotiations, the sale of Citigroup"s captive BPO operations has finally been concluded with Genpact winning the final bid in a closely-run race with Firstsource Solutions.
The transaction is the first such sale of a large captive BPO and sets the precedent for other captive managements that were closely following the process. In terms of transaction value, it is the largest deal in the business process outsourcing segment.
The deal was reportedly done for $630 million with Genpact getting close to 90% in the 10,000-strong operation. The last round had seen some tense moments with the Firstsource turning out to be the dark horse and entering a bid higher than that of Genpact. Genpact was tipped to be the favourite all along, and Firstsource was not expected to be serious contender, more so because of its $330 million acquisition of US-based MedAssist barely a few months ago.
The Firstsource bid was around $100 million more than that of Genpact and although Citi was keen on doing the deal with Genpact, it was caught in a bind over the bids. ET had earlier reported that Citigroup had asked Genpact to match the bid put in by Firstsource. According to sources, the Genpact management considered the proposition but ultimately decided against it. The final deal was structured with Genpact agreeing to a higher bid but with a larger equity holding in the BPO, investment banking sources said.
Apart from the benefits of size and scale of processes that a larger player like Genpact brought, Citi could have also been influenced by the appreciation of its own stake and the potentially higher amount of business it could outsource to the entity, said one source. Globally, Citigroup has taken a beating posting a 57% drop in the September 2007 quarter earnings and the sharpest ever decline in its net income in three years.
A Citigroup spokesperson declined to comment, refusing to either confirm or deny that the sale of the BPO had been concluded with Genpact being the buyer. Calls and messages to Genpact CEO and president Pramod Bhasin also did not get any response. A source close to the development, however, confirmed the deal was finalised early this week.
The Firstsource stock closed at Rs 77 on Thursday, up 5.5% from its previous close on the BSE. Over the last one week, the stock has risen 7%. “Investors were not in favour of the company acquiring Citi BPO. The stock has moved up because they lost the bid," an analyst said. Shares of Genpact, which are listed on the NYSE, rallied on Monday and Tuesday but ended lower on Wednesday at $15.22 compared to the previous day close of $15.75.
Genpact, which was one of the pioneers of BPO, has a global development network spanning 25 locations and nine countries. It started as a captive itself, before its parent General Electric sold part of its stake to private equity players and it became a third-party BPO.
Citigroup, which is also one of the early captive operations by a multinational in the country, has been through many transitions. As e-Serve International, it was listed on the BSE but later, it changed its name to Citigroup Global Services and also de-listed from the stock exchanges.