IGate CEO Phaneesh Murthy Dismissed Over Relationship

Shares of IGate Corp. (IGTE) fell the most in almost two years after the company dismissed Chief Executive Officer Phaneesh Murthy, saying he didn’t report a relationship with an employee.

The stock tumbled 9.6 percent to $14.82 at the close in New York, the biggest decline since Aug. 8, 2011. Gerhard Watzinger, 52, was appointed president and CEO on an interim basis, Fremont, California-based IGate said yesterday in a statement.

IGate’s board hired outside investigators and determined that Murthy’s failure to disclose a relationship violated policy and his contract. The probe, which is continuing, hasn’t found any violation of the company’s harassment policy. Murthy was seen as playing a key role in spurring growth, said Vincent Colicchio, an analyst at Noble Financial Capital Markets.

“It’s likely to be a loss in terms of the company’s brand and its growth prospects,” said Colicchio, who has a hold rating on IGate and owns the shares. “He was out there doing a lot of sales and marketing.”

Murthy said he had a relationship with a woman “over the last few months” and informed the company about it. The issue is with the timing of his declaration and no company policies were violated, he said on a conference call.

“Everything is a regret,” Murthy said. “The entire ordeal is a regret.”

The timing of the disclosure violated company policies, IGate reiterated in a statement.

Infosys Settlements

“Murthy had a relationship with a subordinate employee for over a year, and failed to report this relationship to the board during that time,” the company said. “To report the relationship to the board, more than a year later and after the relationship ended, is absolutely a violation of iGATE’s policy, as well as Mr. Murthy’s employment contract.”

In 2004, Murthy and former employer Infosys Ltd. (INFO) settled a sexual harassment suit in the U.S. filed by a former employee. Payment of the $800,000 settlement was split equally between insurers and Murthy, Infosys, based in Bangalore, said at the time.

Murthy had resigned from Infosys in July 2002 after Reka Maximovitch, a former Infosys employee in the U.S., sued for wrongful termination because she refused to continue a relationship with him. Infosys settled Maximovitch’s $3 million claim against the company and Murthy out of court for an unspecified sum.

Sales, Acquisitions

IGate, which got more than 70 percent of its revenue from the U.S. last year, provides consulting and technology outsourcing services to companies ranging from banks to entertainment companies, according to its website.

Sales in the quarter ended March rose 4.4 percent, compared with a more than tripling of revenue in the year-earlier period, according to data compiled by Bloomberg.

In 2011, IGate acquired Patni Computer Systems Ltd. for $1.22 billion, the second-biggest acquisition of an Indian technology company, according to data compiled by Bloomberg. Tech Mahindra Ltd. (TECHM) last year purchased additional shares of Satyam Computer Services Ltd. (SCS) to value the target at about 89.9 billion rupees at that time.

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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