Digital GlobalSoft can look forward to a period of organic and inorganic growth now that the uncertainty over its future is over with the decision by Hewlett Packard to merge its India software organisation with Digital.
The decision became necessary ever since Compaq merged with HP, thus leaving HP with two software operations in India, its own and Digital, in which Compaq had just over 50 per cent stake.
Merging the ISO of HP Services with Digital means that Som Mittal, president and CEO of Digital, continues to lead the operations which are now substantially expanded.
The new team will number 3,450 professions, with the 950 who were with HP ISO joining the 2,500 who were with Digital.
HP's decision to keep Digital's structure intact is a vote of confidence in its business model which is likely to see substantial growth, both inorganically from the business which will be acquired from HP ISO and organically as a result of the stronger Digital team scouting for new business.
It has been clearly stated that there is likely to be no staff rationalisation as a result of the merger as both the organisations are expanding.
Digital's BPO unit is perceived by HP as a significant asset which will provide maximum scope for growth as there is a wave of MNC outsourcing BPO operations to captive units in India.
The bigger Digital after the merger will be a distinctive listed MNC subsidiary in India. With the HP ISO operations now changing from being a cost centre to becoming a part of a profit centre, the value captured by Digital will be far greater.
Analysts, however, argue that the valuation seems to be tilted in favour of HP and complained that the method of valuation of HP ISO operations has not been revealed.
The merger will be accomplished by Digital issuing shares to HP in two rounds, eventually taking HP's holding in Digital to 76.2 per cent from 50.6 per cent and virtually doubling Digital's share capital.
The deal also involves Digital paying a dividend of not more than Rs 24 per share before the issue of new shares so as to distribute half the cash that the company has been holding till the merger. This is considered fair to existing shareholders.
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