Infosys and IBM for Fidelity - Who will win?

After Citi group sold its BPO unit to TCS, it's Fidelity Investments which is filtering out the buyers for its Indian IT unit. It's now reported that, Infosys and IBM are the final runners to buy this division. Earlier Wipro, iGate and few other IT companies were also in the fray, but they moved out of the deal. Constraints in absorbing the entire 2000 fidelity employees were cited as the reason.

Now, between Infosys and IBM, the later is said to have a higher advantage as IBM has over $200mn contract with Fidelity compared to $50mn of Infosys. But, if fidelity looks for a better deal amount in this tough recession year, Infosys has a better hand to increase the deal amount with its huge cash reserves. Infy agreed to pay more for the deal amounting to $180 mn, which is $30mn more than IBM's proposal. Infosys which has just made two notable acquisitions(Expert systems and Philips BPO) , is desperate for a promising deal which is highly possible during this tough year.

It should be noted that, IBM has recently reported a over-whelming quarterly results ,which rallied the US stock market for that day. So IBM cannot be ruled out on low liquidity.

In terms of relationship, IBM has around 20 years of partnership with the company. Earlier in 2002, Fidelity and IBM formed a joint venture in providing employee benefit plans to external companies. As a part of the deal, fidelity absorbed 450 IBM employees. In this deal, IBM looked after the computer division.

But the area where Infy has some advantage is: Fidelity international has some considerable stake in Infosys. But, the stake's effect on the deal outcome is yet to be seen.

This sale came after Fidelity announced that its Gurgaon(Northern India) offshore center will be closed in the mid-September of 2008. It moved its operations to Chennai and Bangalore as it felt that the operational cost is low in the southern part of India. Also, it should be noted that Fidelity International made an announcement in 2008 that it will cut 1700 jobs in early 2009.

Tags: Infosys, IBM, Fidelity, Fidelity deal