Tech Mahindra bought a 42.7-percent stake in Hyderabad-based Satyam in April 2009 when it was on the verge of collapse following an accounting scandal.
The company has since operated under the name Mahindra Satyam and has emerged from the crisis profitable, posting a net gain of 3.08 billion rupees ($61 million) for the last quarter of 2011.
The takeover of the remaining stake will involve an exchange of stocks, with Satyam shareholders receiving one Tech Mahindra share for every 8.5 Satyam shares.
The merger is expected to be completed in six to nine months.
The as yet unnamed group will be India’s fifth-largest locally-listed software exporter by sales and have annual revenue of $2.26 billion, a market value of nearly $3.4 billion and 350 active clients.
Ankita Somani of Angel Broking said the merger created a diverse company with a presence in manufacturing, financial services, banking, telecom and retail.
Shares of both firms rose smartly after the announcement, with Tech Mahindra closing up 5.48 percent at 683.9 rupees while Satyam ended up 4.59 percent to 77.55 on the Bombay Stock Exchange.
The merger comes as India’s software industry is forecast to enter a period of slower growth, given the tough business conditions faced by clients in the United States and Europe, both key markets for Indian software firms.