The Hindustan Times reported a billion dollar punch by an Indian IT firm – Tata Consultancy Services (TCS). TCS is close bagging a billion dollar outsourcing contrast from T-Systems, a unit of Deutsche Telekom. This would be the first $1 billion contract coming to an individual Indian IT company. Industry experts speculates that this barter deal will give TCS a company stake in T-Systems, equivalent to the value of service contract. TVS might end up acquiring around 10% equity in T-Systems. Such stock-in-service barter deals provide predictability in long-term contract for TCS and gives T-Systems the comfort of getting adequate attention in terms of manpower for the job.
Deutsche Telekom is an integrated telecom player and its wholly owned subsidiary T-Systems is a provider of information and communication technology services across 30 countries. T-Systems’ portfolio includes a full range of consulting and outsourcing services. It also provides telecom services to international carriers and corporate customers. The term of the contract is expected to be between three and five years. This, in effect, means the annual size of the deal is somewhere between $200 million and $300 million.
TCS also needs some kind of comfort that the deal will be renewed. In fact, depending on the success of implementation, the scope of the deal can further be enhanced. TCS has agreed to such issues and its negotiations with T-Systems are at an advanced stage. It is tying up loose ends like protecting margins while retaining the work-force. In addition, since T-Systems is not a listed company, the agreement provides an exit clause to TCS after a certain period.