VanceInfo Technologies announced on Friday that it would merge in a 100% stock-for-stock transaction with its rival hiSoft Technology to create what they say will be the biggest China-based offshore IT services provider by revenue.
Under the terms of the agreement, VanceInfo and hiSoft shareholders will each own 50% of the combined company upon completion of the transaction. Each party will appoint four members to the combined board and the company will operate under a shared management structure and a new name. As such, it represents one of the first merger of equals in China.
As of the announcement, the companies have a combined equity value of about $875 million and projected sales for 2012 of $670 million. The merged company will have the biggest resource base, most comprehensive breadth of IT services and the most balanced geographic customer profile. Plus, the combined entity will have synergies in sales, general and administrative costs, effective utilisation of facilities and sharing of future R&D and capital investments, says a source close to the deal.
To effect the transaction, each ordinary share of VanceInfo issued and outstanding will be exchanged for one ordinary share of hiSoft, and each American depositary share (ADS), which represents one VanceInfo ordinary share, will be cancelled in exchange for one ADS of hiSoft. Immediately prior to the transaction, hiSoft will effect a roughly 14-to-1 reverse stock split of common shares, effectively implying a 1.36-to-1 hiSoft ADS split.
The parties expect to close the transaction in the fourth quarter of 2012.
Citi acted as exclusive financial adviser to VanceInfo and Lazard advised hiSoft.
