Capgemini, the French IT services group, has held early-stage talks with Reliance Communications, of India, that could result in the first acquisition of a significant Western IT house by one of India’s fast-growing competitors.
Times Online can reveal the French-based group has met with Reliance Communications, the technology and telecoms arm of Anil Ambani’s Reliance ADAG group in recent months, sources said.
The initial discussions failed to make progress after the parties could not agree on a price.
The possible takeover of Capgemini emerged as the group acknowledged that the US sub-prime mortgage crisis that has wiped billions of dollars off banks’ balance sheets could impact its own growth in the coming year.
The company made the forecast as it revealed full-year profits for 2007 rose from €293 million to €440 million (£327 million), which was in line with analysts expectations.
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Capgemini said: “It is not inconceivable that the difficulties of the banking sector will end up spreading to the whole economy and reach our own disciplines.”
But Paul Hermelin, the chief executive of Capgemini, was upbeat, stating that organic growth for 2008 would reach towards the top of expectations.
It was rumoured last month that Capgemini had also held talks with Wipro, one of the largest Indian IT players.
Wipro denied the talks, although sources close to the Indian group say a move was mooted, internally at least, before it was deemed that a merger “was not viable”.
Reliance Communication’s interest confirms Mr Ambani’s hopes to build a significant IT business.
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A move on Capgemini would give it access to a client base in continental Europe and catapult it among the world’s top ten IT groups by market share.
Mr Ambani, India’s second-richest man after his estranged brother Mukesh, has already suggested that he aims to be among the world’s five biggest video games developers.
His Reliance ADAG conglomerate spans from power generation to cinema theatres and his recent $3 billion (£1.5 billion) floatation of Reliance Power was the biggest in India.
He recently reorganised the 15,000 IT staff his group employs in-house to form a group that can tackle contracts for outside parties.
Capgemini said that it would not comment on “rumours or hearsay”.
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Reliance Communications declined to comment.
IT services companies are the flag bearers of India’s economic rise but so far have failed to make inroads into the industry’s top tier, leading to intense speculation that they will swoop on a Western rival.
According to a report published in September by Gartner, the analyst, no Indian company figures in the top ten IT service providers in terms of market share.
The highest-ranking was Tata Consultancy Services (TCS), India’s largest private sector employer, in 35th place with 0.6 per cent of the market.
TCS had one eighteenth the revenues of the market leader IBM, which earned $48 billion from IT services.
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Capgemini was in eighth place with 1.4 per cent market share.
Gartner concluded that it would take India’s largest IT firms “a number of years to challenge the top service providers ? unless they make a major acquisition.”
However, analysts say that hammering out a price will be problematic.
George O’Connor, of Panmure Gordon, said: “Mergers for [Indian] companies are structurally hard as the aim is to take a big proportion of the Western company’s underlying assets — European workers — and replace them with cheaper offshore ones.”