Cybertech’s reverse merger with parent delayed - Views on News from Equitymaster

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Cybertech’s reverse merger with parent delayed

Jan 12, 2000

Cybertech systems and Software’s (CSSL) planned reverse merger with its parent the $75 m Cybertech System of the USA (CSI) has run into an objection from two venture capital funds who are investors in the parent. CSSL is a Mumbai based software arm, which trains software engineers for various competencies such as Oracle, Cisco and on the SAP platform for ERP. The engineers are then sent to work for CSI based in the USA.

In the past the negative perception of transfer pricing i.e. the revenue that the India based company derived from its US parent (which owns 51% of CSSL) had bogged down the market capitalisation of the domestic company.

With the impending reverse merger and a probable listing on the Nasdaq, the market capitalisation had almost doubled over the past quarter. With a delay in the reverse merger it is quite possible that the valuations could come off.

One option that the parent company is toying with, is the hiving off the networking business ($ 8 m ) of CSI which could then be listed for giving the venture funds an exit option. However, the networking business caters to Cisco, which is one of the most reputed of CSI’s clients and it was this business that provided it the cushion when the ERP business softened last year.

There would definitely be a negative effect on valuations of the merged entity (as and when the merger were to come through) if the networking business were to hived off.

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