3 days ago
Shares of Cigniti Technologies Ltd. declined by over 7%, while Coforge shares traded flat on Monday, December 30, following the announcement of a merger between the two companies.
Mid-tier IT company Coforge stated that its board has approved a scheme of amalgamation with Cigniti Technologies through a share swap arrangement.
Cigniti shareholders will be issued one equity share of Coforge for every five equity shares of Cigniti held by them.
The share swap transaction will lead to 4% dilution in Coforge equity shares.
According to brokerage firm Emkay Global, the share swap ratio concurs with the current share price of both the companies with Cigniti trading at a marginal 2% discount.
Emkay has retained its 'Reduce' rating on Coforge, with a price target of ₹6,750 per share. This target for the stock implies a potential downside of 28% from Friday's closing levels.
Emkay believes the transaction is in-line with the company’s stated intention of merger through share swap at the time of acquisition. The merged entity will create three new scaled-up verticals – Retail, Technology, and Healthcare.
Coforge derived 48% of its global revenue from North America in the financial year 2024, as its presence has largely been East Coast-centric in the USA.
"The merger supports its intention of establishing a significant beachhead in the crucial West, South-West, and Mid-West markets, along with expansion in North America," the brokerage said.
Coforge stock has rallied 90% since the announcement of the Cigniti acquisition, while Cigniti stock is up 35%. This divergence in stock price performance of both companies would be beneficial for Coforge's shareholders as it leads to lower potential dilution.
The market capitalisation of Coforge has doubled to over ₹62,000 crore in the past seven months. Cigniti's market capitalisation stood at ₹5,000 crore.
On May 2, 2024, Coforge entered into a Share Purchase Agreement (SPA) with the promoters and select public shareholders of Cigniti, to acquire up to 54% of the share capital of Cigniti along with stating its intention to merge both companies through share swap after obtaining shareholder approval. As a result, the company currently holds 54% of the expanded share capital of Cigniti.
Shares of Coforge Ltd. fell 0.37% lower at ₹9,416 apiece on the NSE. The stock has gained over 50% so far in 2024.
