IT services company Visualsoft Technologies has decided not to pursue the proposed 3-way merger with Applabs Technologies Private Limited and eSolutions Private Limited. The company cited delays in getting regulatory approval as the reason for dropping the merger plans.

Visualsoft said delays in getting the approvals will not benefit the planned synergised growth of the merged entity. The company has not disclosed the nature of approvals which were getting delayed or the reasons for the delay.

The merger proposal had met with some opposition from the existing shareholders of Visualsoft because of the high valuations for the two companies being merged with it. Opposition from existing shareholders would have made it difficult for the company to get High Court approval for the merger.

Applabs is into software testing services while eSolutions focuses on outsourced software product development. Visualsoft, which is one of bigger Indian software companies in the product development space, had proposed to realign its business to focus on product development and software testing after the merger.

Visualsoft first announced the merger in October 2005 and the board had approved a scheme of amalgamation in December. Shareholders of Applabs and eSolutions were to get equity shares in Visualsoft, proportionate to their holdings in the two companies.

The merged entity would have had around 1800 employees and was targeting profits of Rs70 crore on revenues of Rs400 crore for the financial year 2006-07.

Visualsoft had reported a net profit of Rs4.04 crore, or Rs2.02 per share, for the quarter ended December 2005 as compared to Rs6.11 crore, or Rs3.06 per share, for the previous quarter ended September 2005. Total revenues for the December 2005 quarter declined to Rs28.77 crore as against Rs54.14 crore for the previous quarter.

In an interview to a television channel, the Visualsoft management said it expects profits of around Rs20 crore on revenues of Rs150 crore for the financial year 2006-07, on a standalone basis.

The stock price of Visualsoft saw a sharp run up before and after the merger announcement. After touching a high of Rs266 in January, the stock has been steadily losing ground for the last couple of months. Visualsoft closed at Rs139.45 on the NSE on Friday.