TCS-CMC MERGER: Gunning for the Government Market

Recently, the government has divested 51 percent stake in CMC to Tata Sons
for Rs 152 crore. It seems CMC, is the first listed company which the government
has divested in its disinvestment drive.

"CMC has a great deal of competency", says Ratan Tata, chairman,
Tata Group. It is this competency which urged Tata Sons to buy CMC even though
Tata Group has Tata Infotech, which directly competes with CMC in network
integration as well as the training market. Though Tata Infotech and CMC compete
in vertical markets of finance and banking, CMC has an edge over it, as it has
the domain expertise in embedded systems, security, railways and ports. CMC also
has an advantage, as around 50 percent of its revenue comes from public sector
and defense units where most of the private companies have to struggle hard to
make their mark. Tata can leverage on this opportunity, as CMC will open up new
avenues for the company in the public sector arena.

With a strong focus in financial software, TCS, with the buying of CMC, has
the capability to provide a complete solution to financial companies, as 30
percent of CMC’s revenue comes from the banking and financial sector. This
will help TCS to increase its market share in this sector.

Though TCS might have to live with an extra baggage of the public sector and
its large base of employees, it would not be easy to restructure the
organization as Ratan Tata feels that the baggage is with the system and not
with the people. So it will depend on Tata how fast does it puts the system in
place, so that it can reap the benefits which will help in building up of a
world-class competitive workforce in the domestic and international market, with
the coming up of CMC under its fold.

Pravin Prashant