The demerger means Wipro will hive off three units - Wipro Consumer Care & Lighting, Wipro Infrastructure Engineering and Medical Diagnostic Product & Services business - into a separate unlisted company called Wipro Enterprises. Together, the three units contributed 14 per cent to Wipro's revenue.
The IT business, which contributes 86 per cent of revenue, will remain a publicly listed company. In FY12, IT business contributed 94 per cent to the operating profit.
Global investment bank UBS says shareholders have three options. i) Receive one share of Wipro Enterprises for five shares of Wipro Ltd., ii) one redeemable preference share in Wipro Enterprises @ 7 per cent for every 5 shares of Wipro Ltd., and iii) exchange one share of Wipro Ltd held by the founder for every 1.65 shares in Wipro Enterprises.
UBS says most institutional shareholders’ are likely to go for the third option and receive shares in Wipro Ltd. from the founder.
"If all minority holders were to use option three, we estimate that it would bring down the founder's stake by nearly 2.5 per cent," UBS said.
The finance ministry has mandated a minimum public shareholding of 25 per cent in listed companies by March 2012. In Wipro's case, the founder Azim Premji holds nearly 80 per cent shares in the company (excluding ADRs). So, he will still need to sell some stake by to comply with listing norms.
UBS says the demerger should be seen as one-time positive impact on the stock as it helps partly remove the overhang regarding founder stake sale.
Investment bank Barclays said shareholders will benefit from the transaction. Shareholders may get back some 12-15 per cent in terms of compensation, a Barclays analyst said.
Wipro's chief financial officer Suresh Senapaty expects profit margins to improve after the separation of non-IT businesses.
Creating a IT-focused company will allow Wipro to "accelerate investments necessary to capitalize on market growth opportunities," said T K Kurien, CEO Of Wipro's IT Business.
However, some analysts said the move is unlikely to have a significant effect on shares. "I don't think it's a very material move, in the sense, when people looked at Wipro, it was always as one focused on IT," said Bhavin Shah, chief executive of Equirus Capital in Mumbai.
(With inputs from Thomson Reuters)