Digital GlobalSoft went into a freefall early morning as traders felt that the merger deal between the company and HP Services' India Software Organization lacked clarity.

Such was the resultant selling that, by 10:40 IST, the scrip of the software company lost 24.62% to Rs 377. It had fallen to an even lower Rs 330.15 earlier. Substantial volumes of over 14.89 lakh Digital GlobalSoft shares were traded on BSE by then.

On Saturday, the company announced that it had signed a definitive agreement with parent company Hewlett-Packard (HP) to combine with HP Services' India Software Organization (HPS ISO), establishing a significant services company with HP as a key investor, customer and supporter.

After the merger is culminated, Digital's equity capital will increase to Rs 60.8 crore from Rs 33 crore and HP's shareholding in Digital will increase from the present 50.6% to 76.2% (following the issue of additional equity and convertible preference shares to HP).

The merger between Digital GlobalSoft (Digital) and HP Services' India Software Organisation (HPS ISO) is likely to become effective in the next 6-12 months.

Analysts attribute the lack of transparency over the merger as the reason for the current offloading in Digital. Though the merger is deemed to be good for Digital business-wise, as much of the company's revenues stem from business with HP, the valuation of the merger is not satisfying.

There's also disappointment that no financial details about HPS ISO's software business have been disclosed.

Digital has also proposed to issue a special dividend not exceeding Rs 24 per share, prior to the issue of equity to Hewlett-Packard. This would be amounting to a pay out of about Rs 79.2 crore.

For Q4 ended 31 March 2003, Digital recorded a 13% rise in net profit to Rs 30 crore compared to a net profit of Rs 26.6 crore in the corresponding period of the previous year. Revenues jumped by 30% to Rs 121.47 crore from Rs 93.77 crore in MQ 2002.

On a sequential basis, net profit climbed by 11% from Rs 27 crore on a 12% increase in total revenues from Rs 113.3 crore. Net worth is also up at Rs 322.9 crore as on 31 March 2003 from Rs 306.9 crore as on 31 December 2002.

For the full year ended 31 March 2003, the company recorded a growth in net profit of 14% to Rs 106.02 crore (Rs 92.67 crore) on a 27% increase in total revenues (including other income) to Rs 439.94 crore (Rs 345.25 crore). The business from HP grew by 9% and independent business by 130% in FY 2002-03. The company has recommended a 45% dividend for FY 2002-03.

During Q4, the company added 21 new customers (15 in services and 6 in the products business). Human resources strength increased by 68% to 2,490 people in FY 2002-03. The company also made an entry in new regions in the Middle East in FY 2002-03, including Kuwait, the UAE and Saudi Arabia.

Digital GlobalSoft, previously known as Digital Equipment (India), is a globally focused software development and services company. It has an independent charter for growth and functioning, and enjoys the unique advantage of having Hewlett-Packard Company, one of the leading IT companies in the world -- as a major investor, customer and supporter.

Earlier, at the global level, there was a merger between Hewlett-Packard, Heloise Merger Corporation and Compaq Computer Corporation. A new entity called Hewlett-Packard Company took shape on 7 May 2002 in the US. Compaq Computer Corporation is the holding company of Compaq Computer Holdings UK, that owns equity stake in Digital GlobalSoft.