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Mastech splits nine ways
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March 7, 2000: 6:04 p.m. ET
Internet service consultant changes name to iGATE; will take its pieces public
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NEW YORK (CNNfn) - Mastech Corp. on Tuesday announced that it had changed its name and split its operations into nine separate units, transforming the information technology and consulting firm into an incubator for global Internet business-to-businesses services.
All of the slices of the new umbrella company, named iGATE Capital Corp. (IGTE: Research, Estimates) will eventually become publicly traded, according to analysts who were briefed by the company.
While company representatives were not immediately available to comment, Pittsburgh, Pa.-based Mastech has hinted in recent months that it would set an initial public offering in India of its Mascot Systems unit, and that it was hungry for acquisitions.
The segments, which includes five units of Mastech and four new companies, will leverage the existing "eServices" expertise within the former Mastech, a $470 million company with operation on five continents, officials said in a written statement.
The company also created a new $75 million venture fund, iGATE Ventures, to identify investment opportunities, they added.
Mascot Systems, an offshore Web development company, and Emplifi, a consulting firm that helps companies integrate current computer systems with their Web and e-commerce systems, will likely go public in the next two or three quarters, analysts said. IGATE could spin off about six of the companies by the end of 2000, they added.
In addition, the remaining core company, which is not related to the Internet, may at some point be sold outright, analysts said.
Wall Street cheers move; stock jumps
Encouraged by the announcement, investment banking house Scott and Stringfellow in Richmond, Va. on Tuesday upgraded its opinion on the stock to strong buy from buy, and catapulted its 12-month price target to 150 from 50, to factor in the comparative value of the new segments.
"We believe that iGATE should be valued as an Internet incubator rather than as an IT services company," analyst Thomas Neuhaus said. "This argues for a sum-of-the-parts valuation similar to companies such as Internet Capital Group (ICGE: Research, Estimates) and CMGI (CMGI: Research, Estimates)."
Investors also warmed to the move, lifting the stock 50 percent, or 21-1/4, to a closing price of 63-3/16, in its first day under the ticker symbol "IGTE" on Nasdaq. Shareholders who currently own Mastech shares will automatically own the same number of shares in iGATE.
Quoting data complied by research firm International Data Corp., iGATE estimates the overall eServices market grow to $80 billion by 2003, from about $13 billion in 1999, as businesses use the Internet to improve efficiency, streamline complex processes and lower costs.
"Mastech has a proven track record in creating new eServices businesses and delivering real value to our clients," said Sunil Wadhwani, chief executive of iGATE Capital in a statement. "Our new structure will enable us to leverage our core strengths, and give us the ability to acquire and build additional companies in order to penetrate emerging eServices markets quickly."
Each of the operating companies has an experienced senior management team in place, the company said. iGATE said no financial transactions are associated with the reorganization. 
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Mastech
iGATE Capital
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