Satyam deal could spell trouble for BT

BT could face disruption from a deal to sell troubled outsourcer Satyam to one of its key suppliers, analysts are warning.

An auction of a 31 per cent controlling stake in Satyam was won by Indian outsourcer Tech Mahindra on Monday, a company set up as a joint venture between BT and conglomerate Mahindra and Mahindra.

Satyam offers a wide range of IT outsourcing services and expertise, building up a base of 600 clients at its peak, including household names such as BBC Worldwide, Nestle and Fifa. Tech Mahindra meanwhile is smaller, focused mainly on telecoms and network services, has about 100 clients and is reliant on one company, BT, for about 60 per cent of its revenue.

BT retains a 31 per cent stake in Tech Mahindra, which is also a key supplier to its outsourcing arm BT Global Services.

BT Global Services recently warned it may have to writedown £340m on 15 of 17 of its largest outsourcing contracts and Anthony Miller, managing partner with analyst house TechMarketView, questioned whether it was a good time for such turbulence at one of its key suppliers.

"The deal is fraught with risks, of which some are still yet to be quantified.

"BT is in somewhat of a troubled state with regards to its global sourcing business and what it does not need at the moment is another element of risk," he told silicon.com.

"The structure and the nature of the two businesses is very different and any integration between the two is going to be very tricky.

"It is going to take up a lot of Tech Mahindra's time while they try to make the business work and that could have an impact on their customers and BT."

Phil Morris, chief operating officer for Europe and Asia at outsourcing advisors EquaTerra, said customers will need to brace themselves for difficulties during the takeover of Satyam.

"The challenge is that what [Tech Mahindra] have bought is the dog and they are the tail. Trying to absorb Satyam is going to be like eating an elephant.

"The real work starts now in terms of what the hell Tech Mahindra is going to become - will it revert into Satyam or is it going to give it a whole new identity?

"Customers should be looking at [Tech Mahindra's] time being diverted away to other issues and customers and get commitments about timelines and service delivery.

"Failing this being tackled satisfactorily, they should look at...

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