Bangalore : The ailing global financial services firm Citigroup Inc is selling its India-based captive IT services subsidiary City Technology Services (CTS) to Wipro Technologies for $127 million (Rs.6.2 billion) in an all-cash deal, the IT bellwether announced here Tuesday.
Of the total value for 100 percent equity, Wipro will pay $26 million in cash towards premium and $101 million for the assets of CTS in Mumbai and Chennai.
The transaction is expected to be completed by March 2009, Wipro said in a statement.
With 1,650 employees and two offices each in Mumbai and Chennai, the three-year-old CTS has projected $80 million top-line revenue for 2008 against $53 million in 2007, a growth of 51 percent year-on-year.
“We are exiting from IT services business to focus on our core competency, which is banking and financial services. As managing the scale of such operations is challenging in these tough times, we have decided to sell the subsidiary to the Indian top vendor,” Citi global technology head Jagdish Rao told reporters.
As part of the deal, Wipro will sign a six-year master services agreement to deliver technology infrastructure services and application development and maintenance services to Citigroup entities worldwide. The agreement estimates $500 million service revenue from the contract.
“The master services agreement does not preclude us from servicing other clients in the financial sector,” Wipro joint chief executive Girish S. Paranjape said.
CTS employees will be integrated with the remote infrastructure management services division of Wipro’s global IT services business and its technologies/processes will be utilised to serve Citi businesses across 32 countries in application development and maintenance for credit/debit cards, capital markets and corporate banking.
Post-acquisition and merger, revenue from CTS will be reflected in the IT business revenue of Wipro in the fourth quarter (January-March) of this fiscal.
“Our domain expertise and infrastructure management capabilities have positioned us as Citi’s partner of choice. The acquisition will strengthen our service offerings to Citi and other global clients,” Paranjape noted.
Citi chief administrative officer Don Callahan admitted in a statement from New York that the sale was consistent with the group’s efforts to improve its operating leverage and focus on its core banking competencies.
The ‘distress’ sale of CTS comes close on the heels of Citi selling its Citigroup Global Services Ltd (CGSL) to India’s largest IT bellwether Tata Consultancy Services (TCS) for a whopping $505 million Oct 8.
In addition to the sale, Citi signed a nine-year contract with TCS to provide, through CGSL, process outsourcing services to its affiliates for $2.5 billion.
In the wake of financial crisis, the US government bailed out Citigroup Nov 24 with a $20-billion package and a cover of $306 billion for its high risk assets.