The Hindu Business Line : TCS to retain entire team of Citi’s BPO unit

Tata Consultancy Services (TCS) will not only retain each of the more than 12,400 employees currently working with Citigroup Global Services Ltd (CGSL), but also scale up hiring for its BPO operations, a top company official said.

There is no scope for laying off employees as the Citibank-incorporated firm has a utilisation rate of well over 90 per cent, a clear indicator of the volume of work coming CGSL’s way, according to Mr N. Chandrasekaran, COO and Executive Director, TCS.

$505-m deal

Moreover, this acquisition — of a 96.3 per cent stake for $505 million in cash — ensures TCS assured business of $2.5 billion from Citigroup over a nine-and-a-half-year period.

“In order to fuel our growth requirements on this front, we also have plans to scale up hiring,” said Mr Chandrasekaran.

TCS has bagged this deal after almost a year of deliberations. IBM, Genpact, WNS and Firstsource were the other contenders in the fray, industry watchers said. The Citi unit, previously known as e-Serve International, was delisted from the Indian bourses in mid- 2004. “With this acquisition, we will be able to offer outsourcing services related to core banking operations, which till date have remained in the remit of captives. We will take these services to other clients, including small- and medium-sized banks,” the TCS CEO and Managing Director, Mr S. Ramadorai, had said at a press conference recently.

This acquisition, which will be completed by the fourth quarter of the current fiscal, makes TCS’ BPO practice the second largest in the country after Genpact. TCS’ BPO unit will now have more than 20,000 people on its rolls. Some analysts feel that TCS has overpaid for this acquisition, given the current negative downturn in financial markets worldwide. TCS has paid around twice the revenues of CGSL for its acquisition. CGSL is expected to close calendar year 2008 with $280 million in revenues

So what is TCS’ strategy to ensure that its $2.5-billion deal is protected given the international financial situation?

According to Mr Chandrasekaran, the $2.5 billion is legally binding on Citibank. “We have protected ourselves contractually. If somebody buys Citigroup, it will be binding on them to pursue our contracts.”

Crisis waning

He believes that the sub-prime crisis is close to bottoming out. “When all this is over, there will be lot of demand for technology in terms of consulting and integration,” said Mr Chandrasekaran. Citigroup has been TCS’ customer since the last five years; with this deal, Citigroup would become TCS’ largest client, analysts feel

The company has said that it has no plans to publicly list CGSL, which would become a subsidiary of TCS on completion of the acquisition process.