Magazine article American Banker

Citi to Buy 87% Instead of All of E-Serve

Magazine article American Banker

Citi to Buy 87% Instead of All of E-Serve

Article excerpt

Citigroup Inc. said Monday that it had agreed to spend $112 million to increase to 87% its stake in an Indian outsourcing operation that it founded.

Citi, which currently owns 44.5% of the Mumbai company, had announced in April that it would buy all of its outstanding shares for $126 million. An 87% stake, however, would be sufficient to de-list the publicly owned e-Serve International Ltd.

Michael Haney, a senior analyst at Celent Communications LLC in Boston, said this probably does not represent a strategic change on Citigroup's part with respect to e-Serve, whose share price is up 15%, to $21.09, since the original announcement.

"As long as they hold the majority stake, there is no need to own them outright," Mr. Haney said.

Under the new agreement, Citi is to buy 5.3 million of the 6.89 million outstanding shares of e-Serve, which it founded in 1992 through Citicorp Securities and Investments Ltd. The outsourcer provides transaction processing, customer service, and information technology services to Citi in 25 countries; it has no other customers.

Mr. Haney said Citi probably would have agreed to buy more shares if the share price had been lower. "The value of e-Serve essentially went up" after the April announcement, he said.

Virginia Garcia, a senior analyst at TowerGroup, the Needham, Mass., market research unit of MasterCard International, said Citi's ambitions to own the company may have caused e-Serve's share price go up.

"It seems like they really wanted to get 100% of the company," and investors noticed, Ms. Garcia said. The stock price shot up when Citi made its initial offer, and institutional investors made sure it stayed up, she said. …

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