>> Tuesday, April 14, 2009
Maimed and left gasping for a lifeline, Satyam Computer Services has finally found its new knight in shining armour, Tech Mahindra.
The bidding process for the beleaguered software firm culminated on Monday with TechMa emerging as the highest bidder with an offer price of Rs 58 per share. TechMa's price outbid other suitors, engineering giant Larsen & Toubro and private equity player Wilbur Ross, by a comfortable margin.
L&T's bid of Rs 45.90 per share and Wilbur Ross' Rs 20, were not even within striking distance of TechMa's deal-winning bid.
At Rs 58 per share, Tech Mahindra will acquire a controlling stake of 51% in Satyam for Rs 2,889 crore, pegging the total value of the company at Rs 5,665 crore. In the first stage, Satyam will issue 30.27 crore shares to TechMa, representing 31% of the company's share capital, which will infuse Rs 1,756 crore into the company. In the second stage, TechMa will have to mandatorily make an open offer to Satyam's existing shareholders for another 20%.
However, L&T, which holds a 12% stake in Satyam, will not participate in the open offer for shareholders as it has a lock-in period of six months.
Predictably, both the TechMa and Satyam stocks were caught in a volatile vortex during the days trading. Soon after the Satyam board meet in the early part of the day, the Tech Mahindra scrip on BSE gained 25% to Rs 400. However, late profit-taking shaved off part of its early gains and the stock closed at Rs 349, up 12.3%. While the Satyam stock rallied 16.5% in intra-day trades, it closed at Rs 49, up a mere 3.6%. In mid-session trading, the Satyam ADR was down 15% at $2.25 on New York Stock Exchange.
The acquisition catapults TechMa into the fourth position in the pecking order of IT firms, after HCL Technologies.
However, inevitably, questions are being asked about the winning bid. Have the Mahindras over-valued Satyam, especially since distressed asset buyer Wilbur Ross priced its bid as low as Rs 20? Interestingly, Cognizant, which was to bid jointly with Wilbur Ross, decided to back off at the last minute. Some IT analysts have also described the deal as ``disastrous''.
Defending his bid price, TechMa chairman Anand Mahindra said: ``When you are running in a race, you don't look behind who's chasing you. We believe our bid is rightly priced.'' It is estimated that Satyam's liabilities could be as high as $1 billion. TechMa director Bharat Doshi said that the bid price was determined by the company after taking into account Satyam's liabilities.
Even though the auditors, Deloitte and KPMG, are still in the process of restating Satyam's accounts, a rough calculation of the company's financials was presented to the bidders. As per this calculation, Satyam's annual revenues are expected to decline from $1.8 bn to $1.3 bn. Satyam's operating margin is said to be around 3% vis-a-vis Tech Ma's 22%.
For TechMa, Satyam complements its business, with no client overlap. While the former is a strong player in telecom (75% of revenues), Satyam caters to financial services, manufacturing and healthcare, among others. ``It will require a fair amount of work to bring Satyam back to its past glory. It will be a challenge to make Satyam financially strong so as to retain clients,'' said Vineet Nayyar, TechMa vice chairman and CEO.
With Satyam having a large clientele of over 500 clients -some of them as large as GE, Cisco, Citi and General Motors -Mahindra said: ``I will personally reach out to John Chambers (chairman of Cisco), Vikram Pandit of Citi and Fritz Henderson (GM CEO) to restore confidence in Satyam and us.''
After 100 days of uncertainty, Satyam's acquisition dispels the anxiety of 48,000 Satyamites, ushering in a sense of positivity. The company's former chairman B Ramalinga Raju had, in January, revealed that he had manipulated the company's accounts to the extent of Rs 7,800 crore. He has been behind bars since then, awaiting trial.
Announcing the winning bid, Kiran Karnik, chairman of the government-appointed Satyam board, said: ``Today, we have reached a final culmination stage, and though there are a few steps more to go, what it marks is the end of uncertainty.''
The other logical question is: will TechMa retain the Satyam brand name, given the unwholesome ring it has acquired in the past five months? Meanwhile, Mahindra rubbished rumours that TechMa's strategic partner, British Telecom, did not support the Satyam bid. Incidentally, British Telecom is also TechMa's largest client. - Economic Times