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4/26/2007
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Covansys Buy Gives CSC A Passage To India

CSC's $1.3 billion buyout of Covansys, if approved, would immediately double CSC's Indian headcount to about 14,000.

With demand for programmers and other IT professionals in India tightening, Western tech companies looking to bolster their presence in the outsourcing hotspot may have to buy their way in as an alternative to recruiting. Computer Sciences Corp. is doing just that.

On Wednesday, the U.S. defense and commercial outsourcer announced a $1.3 billion buyout of Covansys, which provides a range of technology and back-office services from locations in Chennai, Bangalore, and Mumbai.

Under terms of the deal, CSC will acquire Covansys for $34 per share in an all-cash transaction. The agreement will have a neutral impact on CSC's earnings per share during the first 12 months, the company said.

"With this action, we are significantly strengthening our capabilities and presence in India," said Van Honeycutt, CSC's chairman and CEO, in a statement. The deal, which remains subject to approval by Covansys shareholders, would immediately double CSC's Indian headcount to about 14,000.

Virtually all U.S. based outsourcers are aggressively hiring in India to meet customers' desire to tap the country's highly skilled, low-cost workforce. Despite annualized salary inflation of about 15% in recent quarters, tech workers in India still earn anywhere from 40% to 80% less than their Western counterparts.

CSC's acquisition of Covansys shows the company is "committed to growing its offshore delivery capability," said Michael Guibault, an analyst at Technology Business Research.

Despite the takeover, however, CSC's Indian operations are dwarfed by those of rivals IBM and Accenture. IBM has more than 50,000 Indian workers, while Accenture has said its headcount in the country will reach 35,000 by year's end, surpassing U.S. levels.

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