Tech Mahindra approached Satyam for merger -report

MUMBAI, Jan 6 - Indian software services firm Tech Mahindra Ltd <TEML.BO> has approached embattled rival Satyam Computer Services <SATY.BO> for an all-share merger, the Economic Times reported on Tuesday, sending shares in both companies higher.

Tech Mahindra, a unit of Indian tractor and utility vehicle maker Mahindra & Mahindra <MAHM.BO>, is looking for a deal that could involve gaining control of the combined entity, the newspaper said, citing an unnamed person with knowledge of the development.

"Anything that offers strategic value to Tech Mahindra would be of interest to the group," it quoted an unnamed executive of Mahindra & Mahindra as saying. The paper also reported a fund manager had said Tech Mahindra was in touch with Satyam's bankers Merrill Lynch.

Analysts said a merger would help Tech Mahindra, which is now focused on the telecoms sector.

"It would mean a broadening of its business model," said a technology analyst at brokerage Pioneer Intermediaries.

Shares in Tech Mahindra rose 9.6 percent to 310.80 rupees by 0500 GMT, while shares in Satyam were trading up 4.25 percent at 174 rupees on hopes of deal, despite a denial from Tech Mahindra.

The vice chairman and managing director of Tech Mahindra said the company had not approached Satyam or its merchant bankers with a merger proposal.

"It is pure fiction at this point in time," Vineet Nayyar told Reuters.

Another company official said the report was speculative.

"Anything before Satyam's board meeting, or the board gets constituted, is so speculative that I just think we are getting ahead of ourselves," said C.P. Gurnani, head of Tech Mahindra's international operations.

Satyam's board is scheduled to meet on Saturday to consider options, including a share buyback.

Satyam has hired the local unit of Merrill Lynch to look at how to boost shareholder value and rebuild investor confidence after a botched attempt in mid-December to buy two construction firms in which Satyam's founders held stakes.

Its stock slumped to a five-year low late last month after it was barred from World Bank business, but recovered 31 percent last week on talk that a reduction in the stake held by the company's founders made Satyam a more attractive takeover target.

The outsourcer said on Friday its founder's holding had fallen by a third to 5.13 percent.

Tech Mahindra is 44.2 percent owned by Mahindra & Mahindra, while Britain's BT Group Plc <BT.L> holds about 31 percent.