VanceInfo, HiSoft to Merge to Form Largest Offshore IT Provider in China
2 days 20 hours 10 minutes ago - Dow Jones News
By Saabira Chaudhuri
Chinese outsourced technology services companies VanceInfo Technologies Inc. (VIT) and HiSoft Technology International Ltd. (HSFT) have agreed to merge in an all-stock deal that would create the largest offshore information technology services provider in China, with a combined market value of $875 million.
Under the terms of the deal, which was billed as a "merger of equals," shareholders of each company will own about 50% of the combined company. HiSoft will be the surviving listed company in the merger, and its shares will continue to be listed on the NASDAQ Global Select Market. A new name for the combined company hasn't yet been unveiled.
HiSoft Chief Executive Tiak Koon Loh will become CEO of the combined company, while Chris Chen, the founder and current CEO of VanceInfo, will assume the role of non-executive chairman. The board of the combined company will consist of four directors selected by each company.
Mr. Loh said the combined company will be a "clear market leader in serving domestic and offshore customers with the largest resource base, most comprehensive breadth of IT services capability and the most balanced geographic customer profile."
VanceInfo offers software-development and information technology application development and maintenance to clients looking to outsource these services. Its principal customers are businesses within greater China, including Hong Kong and Macau, though it has also seen growth in the U.S. HiSoft also focuses on technology outsourcing, and is headquartered in China.
The pair said each outstanding ordinary share of VanceInfo will be exchanged for the right to receive one common share of HiSoft, and each American depositary share of VanceInfo--each of which represents one VanceInfo ordinary share--will be exchanged for the right to receive one American depositary share of HiSoft.
The combined company will have expected 2012 revenue of $670 million and will employ over 23,000 people across 13 locations in China and 14 additional locations worldwide. The pair expect potential cost synergies to reach 2% of combined revenue within 18 months after the closing of the deal, and anticipate that the transaction will be accretive within the first 12 months following the merger's close. The deal is expected to close in the fourth quarter.
Immediately before the merger, HiSoft will effect a share consolidation to ensure HiSoft and VanceInfo will have the same number of outstanding shares and ADSs when they merge.
Also Friday, both companies posted results for the second quarter. HiSoft reported its second-quarter profit jumped 62% as margins and revenue improved and the company reported strength in its China business. It also warned of weak macro-economic conditions but forecast mostly strong results for the current quarter and year. VanceInfo, meanwhile, reported its profit dropped 34%, despite posting record revenue, as expenses climbed.
American depositary shares of both companies were inactive premarket. HiSoft's shares closed at $11.88 Thursday; its stock is up 29% so far this year. VanceInfo's shares closed at $9.94 Thursday; the stock is up 9.6% so far this year.