HCL and Geometric merger. Can someone Please point out the Pros and Cons

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Link here http://geometricglobal.com/wp-content/uploads/2016/04/Final-Geometric_Media_Release_HCL_April_01_2016.pdf

Geometric & HCL Technologies Ltd to combine forces
Creating a unique global business with strengths across PLM, Mechanical and
Embedded engineering services
MUMBAI, India. April 01, 2016: Geometric Ltd (Geometric) is pleased to announce the transfer of its
business to HCL Technologies Ltd (HCL Tech). Under the transaction, the entire business of
Geometric Ltd will be transferred to HCL Tech by way of demerger, except for its 58% share in the
joint venture with Dassault Systèmes (3DS) (3DPLM Software Solutions Limited (3DPLM)). In return,
shareholders of Geometric Ltd will receive shares in HCL Tech in a swap ratio of 10 equity shares of
HCL Tech for every 43 equity shares of Geometric Ltd.
Simultaneously, Geometric Ltd., will be merged into 3DPLM Software Solutions Ltd (3DPLM), thereby
giving 100% ownership of 3DPLM to Dassault Systèmes (3DS), the current joint venture partner of
Geometric in 3DPLM. In exchange for the ownership in Geometric Ltd., shareholders of Geometric
Ltd shall receive one listed redeemable preference share of Rs. 68 each carrying dividend of 7% p.a.
in 3DPLM against every one share of Geometric Ltd.
The transaction is through a scheme of arrangement and amalgamation and is subject to approval
from shareholders and creditors, and various other statutory and regulatory authorities including
the relevant courts.
As consideration for the scheme of arrangement and amalgamation, shareholders of Geometric Ltd.
will receive the following:
For business transferred to HCL Tech 10 equity shares of HCL Tech for every 43 equity
shares of Geometric Ltd
For 58% stake in 3DPLM to Dassault Systèmes
(3DS)
1 listed redeemable preference share of Rs. 68
each, in 3DPLM for every 1 equity share of
Geometric Ltd
Geometric Ltd’s shares will be extinguished as a result of this scheme of arrangement and
amalgamation.
All shareholders of Geometric Ltd (including its Promoters) will receive the same consideration per
share of Geometric. Appropriate transaction documents have been signed which include
representations and warranties from the Promoters of Geometric Ltd to HCL Tech and Dassault
Systèmes (3DS).
Rationale for the Transaction
HCL’s global engineering services business, with a revenue of around $1.2 billion in calendar 2015, is
Geometric Limited
Regd. office: Plant No.11, 3rd Floor,
Pirojshanagar, Vikhroli (West),
Mumbai – 400 079
Tel + 91.22.67056500
Fax + 91.22.67056891
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a leader in this space, and has an industry leading position in hardware & software engineering,
product development & testing, embedded, digital and mechanical engineering. The acquisition
strengthens HCL’s presence significantly, in the PLM consulting as well as mechanical and
manufacturing engineering space. It also significantly strengthens HCL’s Automotive and Industrial
practices.
HCL will inherit several unique Geometric processes, methodologies and intellectual properties in
PLM and digital manufacturing, along with highly specialized professionals in the PLM consulting as
well as mechanical and manufacturing engineering space. The transaction thus creates a unique
portfolio of end–to–end engineering and R&D capabilities across the full product lifecycle –
hardware, software, mechanical & manufacturing engineering and PLM consulting. This in turn will
benefit both Geometric’s employees and customers.
G.H Rao, President, Engineering and R&D Services, HCL Technologies said, “We are looking forward
to an exciting journey and extend a warm welcome to the employees, customers and partners of
Geometric. With the broad end–to–end capabilities and rich experience across PLM consulting,
mechanical and manufacturing engineering that Geometric brings in, the synergies allow us to take
advantage of the rapidly growing manufacturing engineering and PLM services market. It also
provides several cross–sell and up–sell opportunities as the customers will benefit from a unique
services portfolio of end–to–end engineering, R&D, digital technologies and internet of things
capabilities.”
Manu Parpia, CEO and MD of Geometric Ltd. said,
“I welcome this as a truly synergistic transaction, as both our employees and customers will benefit.
Our customers will have access to a wide range of engineering services which complement
Geometric’s offerings. Geometric’s employees will have the opportunity for growth as they can
serve HCL Tech’s large customer base”
JM Financial Singapore Pte Ltd acted as the exclusive corporate financial advisor to Geometric Ltd.
About Geometric
Geometric is a specialist in the domain of engineering solutions, services and technologies. Its portfolio of
Global Engineering services, Product Lifecycle Management (PLM) solutions, Embedded System solutions, and
Digital Technology solutions enables companies to formulate, implement, and execute global engineering and
manufacturing strategies aimed at achieving greater efficiencies in the product realization lifecycle.
Listed on the Bombay and National stock exchanges in India, the company recorded consolidated revenues of
Rupees 11.05 billion (US Dollars 180.61 million) for the year ended March 2015. It employs over 4800 people
across 13 global delivery locations in the US, France, Germany, Romania, India, and China. Geometric has been
assessed at Maturity Level 3 for CMMI 1.3- Development and CMMI 1.3-Services for its Software and
Engineering Services business units and is ISO 9001:2008 certified for engineering operations. The company’s
operations are also ISO 27001:2005 certified.
The copyright/ trademarks of all products referenced herein are held by their respective companies.
For more information, please contact:
Kavita Karnani | +91.20.40284496 | kavita.karnani@geometricglobal.com

As per my understanding if 1 buy 43 shares of geometric , in todays CMP of Rs 217 cost is Rs 9331 out of this i get Preference share of rs 68 *43 =2924 ( hope I can redeem it immediately if required , Also it has dividend of 7% but not mentioned for how long some places it was mentioned as redeemable after 15 months but then do i get only rs 68 or marke price?) then for 9331-2924 = 6407 i get 10 shares of HCL. which works out to be Rs 640 per share. ie discount of 10.64%.

Can someone please clarify If my understanding is correct and if there are things I have overlooked?

2 Likes
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Your calculation is correct. This is an arbitrage opportunity. Debenture will be listed and going by tax free bond rates (which are trading at close to yield of 7%), it should not trade at discount. So you can sell it or wait for redemption while you enjoy a 7% tax free dividend.

On top of this HCL is trading at historically low valuations. Cheapest large cap IT and cheaper than most mid-cap. HCL is fairly diversified across geography and also across service lines (IT, BPO, Infra management, Engineering Services).

Sounds like a good opportunity to me.

Pls do your own diligence.

Disclosure: Invested 8% of my portfolio in Geometric @ 230.

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Any information about the likely date of merger?

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Tried calling kavita mentioned in the media report phone not ringing and also sent a mail to the mentioned email I’d. It has bounced back.

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Should take about 6 months.

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@nav_1996
Hey can anybody clear this out:

How can we redeem preference shares on the exchange? I’m having an account with Zerodha. Can I do it?

And what’s the record date for this merger?

And what’s this statement means?

Geometric will be merged into 3DPLM, thereby giving 100 per cent ownership of the latter to Dassault Systemes (3DS)

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Found a related news shot:

http://www.business-standard.com/article/companies/geometric-more-than-just-a-value-buy-for-hcl-tech-116040300272_1.html

Have a read.

And also consider that merging with geometric will create additional 1.5 crores of shares which will decrease the per share value of the HCL tech.

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My view from HCL Tech’s point of view.
I am surprised that HCL Tech has used shares to buy Geometric. HCL Tech has few billions dollar as a cash and current investment on the balance sheet and it generate a lot of money (PAT for last year 7400), and it distributed half of the profit as a dividend (Dividend Payout of 46% last year). It could have used cash to buy Geomeritc (approximately 1500 cr), without further dilution of shares.

On a business side, I think it is a good acquisition for HCL Tech as Geometric has a strong business with strong MOAT. HCL Tech will further bolster its position on Engineering services and not to mention tremendous opportunity to cross-sell other services to Geometric’s existing client.

On a flip side, Geometric business has less gross margin than HCL Tech, which means HCL Tech’s margin will be negatively impacted next year. I think it is one of the reason’ why HCL Tech’s stock has taken a beating in last few months.
Based on results from other IT companies, HCL Tech’s current quarter may not be great.

Note- I am long time investor in HCL Tech.

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For buying a listed company, share swap is best option. As Geometric is listed, buying in cash is a tedious process due to open offer and not everyone rendering shares and challenges with delisting.

There is no significant dilution. Margins will be slightly dilutive but opportunity to upsell and cross-sell is huge.

If you look at the bigger picture, HCL becomes largest player in engineering services with Geometric merger. This is is a great derisking strategy when IT is getting commoditised.

HCL is nicely placed with 4 pillars - IT infra mgmt, IT services, BPO, Engineering services.

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Can anybody throw some lights on when did the merger date of geometric is likely to happen?

The company acquired Geometric in April but there’s no news after that for any further actions.

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The merger has been approved by the shareholders. There is a latest filing with BSE on the same.

Disc: Sold off my shares in geometric.

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Although many websites have reported that CCI has approved the merger. On the CCI website it is showing as still under review.

http://www.cci.gov.in/notice-order?field_case_date_value[min]&field_case_date_value[max]&combine=&page=1

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You need not worry about this as they don’t have any overlapping business in India. It will be a mere formality.

Disc: Sold my shares in geometric around 240.

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Hello
IS Geometric merger with HCL completed ?
Can someone share current status please.
Thanks

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Yes it is. From March 31st Indian entity of Geometric will cease to exist. US and European entities will still remain though, as subsidiaries of HCL.

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OK Thank you. Will wait for allotment of HCL and 3DPLM allotment :slight_smile:

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Hi,
I was holding shares of Geometric and now I have shares of HCL and the preference shares of 3D PLM. When does one get to divest them?

I understand that both of these shares need to be given approval to be listed. Is my understanding correct?

thanks to anyone who can enlighten me. Also, can the preference shares of 3D PLM be sold on the exchange? how does this work?

regards
Mathew

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3D PLM. Pr shares got listed in the first week of may. U could also lodge it with company for buy back

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I am dealing with redeemable preference shares for the first time. I had shares of Geometric in my account and now I have HCL shares. But I do not see 3d PLM shares in my account. Where do I check for them?

Also what happens if I do not redeem?

Any help is appreciated.

Thanks,
Lav

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Hi Lavpatel

I have a trading account with Zerodha and under my various holdings I can see 3D PLM. I can sell them thro Zerodha.

Also:- I checked my CSDL account and I can see 3D PLM.

I understand that these shares will redeemed in 18 months from March 17. My understanding is that the money will be credited into our bank accounts. I have written to the company secretary. I have had no reply as yet.

In the meantime we should be getting paid 7% dividend.

Regards
Mathew

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