Cigniti Shares Fall 7% After Coforge Announces Amalgamation and Share Swap Ratio

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Cigniti Shares Fall 7% After Coforge Announces Amalgamation and Share Swap Ratio

Cigniti shareholders will be issued one equity share of Coforge for every five equity shares of Cigniti held by them.

December 30th, 2024 News

Introduction
Shares of Cigniti Technologies Ltd. fell over 7% on Monday, December 30, following the announcement of its merger with Coforge. The mid-tier IT company, Coforge, revealed a share swap arrangement as part of the amalgamation, which also caused Coforge's shares to trade flat.

Key Highlights of the Merger

Share Swap Ratio
- Cigniti shareholders will receive one equity share of Coforge for every five equity shares they hold.
- The transaction will result in a 4% dilution of Coforge's equity shares.
Brokerage Insights
- Brokerage firm Emkay Global noted that the share swap ratio aligns with current market prices.
- Cigniti shares are trading at a 2% discount post-announcement.
- Emkay retained a 'Reduce' rating for Coforge with a target price of ₹6,750, indicating a potential 28% downside from the last closing price.
Strategic Impact
- The merger will create three scaled-up verticals: Retail, Technology, and Healthcare.
- Coforge plans to strengthen its presence in key North American markets, particularly in the West, South-West, and Mid-West regions.
- Currently, 48% of Coforge’s global revenue comes from North America.
Market Reaction
- Coforge stock saw a 0.37% dip, trading at ₹9,416 on the NSE. Despite this, it has gained over 50% in 2024.
- Cigniti stock declined by 7%, with the market capitalisation standing at ₹5,000 crore.
Historical Context
- In May 2024, Coforge entered into a Share Purchase Agreement (SPA) to acquire 54% of Cigniti’s share capital.
- This merger announcement aligns with Coforge's earlier commitment to combine the two companies through a share swap after obtaining necessary approvals.

Market Overview and Investor Outlook

Coforge has seen a significant rise in its market capitalisation, now exceeding ₹62,000 crore, doubling in the past seven months. In contrast, Cigniti has experienced a 35% stock price increase since the acquisition announcement.

The divergence in stock performance is seen as favorable for Coforge shareholders due to the reduced dilution impact. However, analysts suggest caution for Coforge investors, with some maintaining a conservative stance on its valuation amidst merger execution risks.

Conclusion

The amalgamation between Coforge and Cigniti marks a pivotal moment for both companies. With plans to expand market presence and consolidate key verticals, the merged entity is set to create new opportunities. However, market participants remain vigilant about the potential challenges and implications of the merger on shareholder value.