Oracle in talks for Citigroup’s I-flex stake

Oracle is in talks with Citigroup's private equity unit over the purchase of a controlling stake in India's I-flex Solutions, maker of the world's best-selling banking software, for a deal that could be worth more than $650m.

A purchase would be one of India's largest deals this year and mark a significant expansion for Oracle in the market for banking software. It would also underline the increasing importance of India's fast-growing information technology industry to international groups.

People close to the situation said the US software company was the frontrunner to buy a 43.1 per cent stake in I-flex from Citigroup in a move that would mark the end of a 20-year link between the US financial services group and the Indian company. They said Citigroup had been looking to sell its I-flex stake for months and, after receiving expression of interests from several companies believed to have included IBM, Oracle was the only suitor.

"Citigroup has been shopping its stake round for some time now and Oracle appears to be the most determined buyer," said one. However, he warned no deal had been signed and the talks could still collapse.

It is understood Citigroup is also considering selling its 44 per cent stake in Polaris Software, an information technology company based in the south Indian city of Chennai - although the fate of that holding is still unclear.

I-flex, whose 4,700 employees design and install software for risk management, Treasury and other back-office banking operations, emerged from a Citigroup unit set up in 1985.

After years mainly spent serving Citigroup's banking operations, the company was spun off on the Mumbai bourse in 2002. Its shares have more than trebled since the listing and touched an all-time high of Rs920 last week.

On Tuesday I-flex shares closed down Rs28.4 at Rs880.5, valuing the company at Rs66bn ($1.5bn). Foreign investors, aside from Citigroup, own 13 per cent of the company. In the last financial year, I-flex recorded net profits of Rs1.9bn on sales of Rs9bn. Revenues came mostly from Africa and Asia, but I-flex is increasingly moving into the bigger, more profitable, US market.

Over the past two years, I-flex has moved to fill holes in its product range with five bolt-on acquisitions aimed at meeting customers' needs for software to comply with Basel II banking rules and the US Sarbanes-Oxley corporate governance law.

Citigroup and I-flex declined to comment on Tuesday. Oracle, which has a software development centre in India, also declined to comment.