Citigroup Global Services & Citos On Block As Part Of Restructuring
Jessica Mehroin Irani & N Shivapriya
FINANCIAL services major Citigroup, which is under pressure from mounting credit-related losses in US, is believed to be re-structuring its India back-office operations valued at over $1 billion in a bid to cut down costs and also monetise some of these assets.
The bank is learnt to have embarked on a larger exercise involving the sale and outsourcing of most of its back office assets under the new management led by Vikram Pandit. Sources said that the group’s captive BPO, Citigroup Global Services, as well as its technology and infrastructure outsourcing arm, Citos, are on the block and the bank could be close to finalising the deal with multinational technology vendor IBM Global Services, which is the lead contender for the assets. European consulting and IT services major, Capgemini, and a large Indian IT services firm, reported to be Tata Consultancy Services, are the other two contenders. The deal, if concluded, is expected to be close to $800 million. Citigroup Global Services is believed to have been put on sale last year but no transaction materialised.
Both IBM and Citigroup refused to comment on the development. “IBM doesn’t comment on speculations. There has been no such announcement by IBM,” a company spokesperson said. A Citigroup spokesperson responded to an e-mail from ET saying: “At Citi, we do not comment on market speculation/rumours. Hence, we will not comment on the following query.” The contours of the deal structure are still unclear but could include a significant outsourcing contract to the successful bidder. Citigroup is learnt to have revived talk of the BPO sale sometime back and was exploring different deal structures.
ESTIMATED BPO VALUATION
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TARGETTED SAVINGS IN 3 YEARS Citos sale a surprise
BUT what comes as a surprise is the sale of Citos, which primarily involved remote infrastructure management for Citigroup and some amount of application development. Citos employs about 2,500 people and services Citi’s operations in 30 countries from its four facilities located in Chennai and Mumbai. “Citos was in the market sometime. But talks were suspended and the asset went off the market just before the new management changes were made,” said a source, confirming that three players were in the contention.
The BPO facility Citigroup Global Services employs over 11,000 people, primarily in Mumbai. The successful bidder will take over all the people assets and any hardware assets such as data centres maintained by Citos. It will also involve a commitment of minimum business for a period of about 3-5 years. In such acquisitions, the final pricing is based on the value of the assets being taken over and the business commitment that is given to the bidder. The committed business and the pricing at which the successful bidder will execute the outsourced projects is what most of the negotiations centre around.
At a recent analyst meet, Citigroup’s chief administrative officer Don Callahan told investors that the bank could get over $3 billion dollars of savings over three years from bringing in efficiencies in organisation and technology.
“Kevin Kissinger and his team of operating and technology took me through two solid days of business reviews. They said here is the benefit we get from centralisation. When we added it all up it was $3-billion of targeted savings over three years,” an excerpt from the analyst call transcript said.