European auto giant Volvo has signed a deal with Indian IT services firm HCL Technologies to sell its external IT business for $108.5 million. The transaction will affect about 2,600 Volvo staff, who would now be offered employment at HCL.
As per the agreement, Volvo Group will also outsource its IT infrastructure operations to HCL Technologies for an undisclosed contract value for five years. The transaction is to be closed during the second quarter of 2016 and will provide both cost savings and a capital gain, Volvo said.
The deal comes almost six months after Volvo announced its intention to find a partner to assume responsibility for its external IT business and its IT infrastructure operations. “Not only will our cooperation with HCL Technologies provide significant cost-savings. We will also make a capital gain when the contract is signed,” said Jan Gurander, Volvo’s CFO and Acting President and CEO.
Judging by the statement of Gurander, Volvo management has been displeased with the performance of its IT division. Moreover, they believed that their IT staff would work better only if they worked as part of a company whose core business is information technology.
“This means that employees within the IT business who join HCL Technologies will have a new affiliation in an environment in which information technology is the core business. I am convinced that this will benefit personnel, supplier and customers,” Gurander added.
HCL Technologies said in a filing to the Bombay Stock Exchange that it will be “acquiring from the Volvo Group its external IT business relating to provision of IT infrastructure, mainframe service and application operation services for an all cash consideration of SEK 1.1 billion ($138 million)”.
Volvo IT employs 6,000 people and is a provider of IT services both to Volvo and to external customers such as Volvo Car Corp., SCA, Assa Abloy and the city of Stockholm. Reports say the group derived revenue of $190 million from external customers during the last 12 months.