HP Ups Stake in India with Digital GlobalSoft

Hewlett-Packard Co. is reiterating its commitment to the Indian software market, amid a growing backlash in the U.S. over off-shoring of IT jobs, especially to India.

The systems vendor said it has chosen to buy the remaining public shares in Digital
GlobalSoft Ltd., the company’s software development and services subsidiary, based in Bangalore, India.

Although it already owns 50.6 percent of the equity in Digital GlobalSoft, the company’s decision to buy the remaining 16.4 million public ally-held shares in the company gives HP a wholly owned software development subsidiary in India.

Under the terms of the deal, HP is offering $16.30 for each share and expects 35,000 shareholders to come forward. HP’s takeover of Digital GlobalSoft would lead to the removal of the company’s listing on the India’s National Stock Exchange (NSE). Prior to this deal, public shareholders held 29 per cent of Digital GlobalSoft’s total shares.

The news reverses a move by the company this past summer to merge HP Services’ India Software Organization (HPS ISO) with Digital GlobalSoft.

Digital GlobalSoft was originally a joint venture between Digital Equipment Corporation and its Indian software partners. It evolved into Digital Equipment India Limited.

When Compaq took over DEC in 1998, the renamed venture became
Digital GlobalSoft Limited. After HP acquired Compaq in 2002, the company became an HP subsidiary with nearly half of its shares outstanding. Those shares have now been acquired by HP.

HP already has close to 5,000 employees in India and Digital GlobalSoft brings another 4,600 software engineers.

Digital GlobalSoft’s Chairman Som Mittal told reporters on Monday that his company will convene a special meeting of its board of directors in the third week of January to vote on the offer. The board is expected to approve the proposed merger.

However, it was not clear what Mittal’s role will be in the new

In a press release issued on Sunday out of HP’s Mumbai, India office, the company said Hewlett-Packard is of the view that a price in the region of 750 (Indian Rupees) per share ($16.43 per share US) provides an attractive exit for the public shareholders of Digital GlobalSoft. The company said the price represents a premium of approximately 50 percent to the average weekly high and low of the closing prices of the company’s shares.

In a statement, Hans Lidforss, HP’s Vice President of Strategy and Corporate Development, said the implementation of the proposal would “allow us to further improve the integration of our Indian operations while offering an attractive exit opportunity to public shareholders.”

The news comes as HP works to garner more share of the outsourcing market from traditional leaders IBM and EDS. On November 28, for example, HP announced a seven-year, $600 million contract for global IT services with Bank of Ireland PLC . The deal calls for HP’s services division to manage Bank of Ireland’s complete IT infrastructure spanning desktop systems, servers, mainframes, local area networks, printing operations and service desk. About 500 Bank of Ireland employees will become part of HP as part of the deal.

With the rapid growth of outsourcing contracts with India, one company is concerned about a backlash against Indian software companies bidding on U.S.
contracts. Tata Consultancy Services, recently lost a $15 million,
three-year contract with the state of Indiana and the company is troubled by
how its deal was revoked.

“If this sort of things happen, obviously it is going to restrict our choice to compete in that market. The initial impact is not there. But looking at the long term view of the market, it is something we need to worry about and engage with Governments to ensure that we can do something,” Phiroz Vandrevala, executive vice president of Tata Consultancy Services, told The Hindu, a major Indian newspaper.

Tata has called on both the Indian government and Nasscom, the leading national software industry association in India, to respond to its complaint concerning the revocation of its IT service contract with the state of Indiana.

Indiana’s Governor Joe Kernan ordered the cancellation of the state contract with Tata America International Corp., a subsidiary of TCS. The contract is for upgrading the state’s computers for processing unemployment claims. Tata beat out U.S.-based Accenture and Deloitte Consulting for the contract and as many as 65 “contract employees” were to work alongside with 18 Indiana state government workers.

In addition, Indiana’s state senate is holding a hearing today to hear more discussion on a new bill that would require state contracts specify that only U.S. citizens and green card holders could only be hired for the state government’s IT needs.

The bill, which is expected to go to a full vote in January, is being watched closely by other state legislatures that have become aware of the increasingly politicized issue.

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