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.
Mr. Haney said Citi stands to gain from merging its corporate culture with e-Serve's and from having more control over the outsourcer. Citi could also help e-Serve expand, and eventually it could do a spinoff. (In 1985 the New York company founded Citicorp Overseas Software Ltd., which was later spun off and is now a part of Polaris Software Lab Ltd.)
Ms. Garcia said Citi is giving itself "the capability to send very critical business processes to an overseas site." It can do that without owning 87% of e-Serve, but this way it will have "much better governance" over it because it will eliminate outside concerns about data management and security, she said.
Spinning off e-Serve in a few years would fit Citi's past patterns, Ms. Garcia said, but the deal is more about "getting control of data privacy." What is more likely to happen, she said, is that e-serve will "be a part of the overall Citigroup operations."
Other financial companies have made similar moves in India in recent months.
In April, International Business Machines Corp. announced a $170 million agreement to buy Daksh eServices Pvt. Ltd. of Haryana, which has call centers that serve Amazon.com Inc. and Citigroup.
And in May, Bank of America Corp. created an outsourcer called Continuum Solutions Pvt. Ltd., of Hyderabad, to handle back-office processing.
