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Satyam’s saviour has a mountain to climb

14 апреля 2009

Early on Monday morning, the chairman of the government-appointed board of Satyam Computer Services, Kiran Karnik, hurried into the Taj President Hotel in south Mumbai to begin one of India’s strangest corporate sell-offs.

He was immediately accosted by two Indian television reporters who were quickly ejected from the hotel by a phalanx of walkie-talkie-wielding security guards. But the journalists did not have to wait long to hear the outcome of the auction of Satyam, India’s fourth-largest outsourcing company that was put on sale earlier this year after falling victim to the country’s biggest corporate fraud.

“Satyam had been driven off course and now it will be reborn with a new investor,” Mr Karnik said, emerging before the media after lunch with the news that the highest bidder in the auction was Tech Mahindra, a medium-sized operator controlled by India’s Mahindra & Mahindra industrial conglomerate and partly owned by British Telecom.

The sale of Satyam is a significant achievement for the company’s government-appointed board and its bankers, Goldman Sachs and Avendus Capital.

When its former chairman, B. Ramalinga Raju, admitted in January to fixing its books for six years, even inventing a cash reserve of over $1bn, many feared Satyam would be closed down, leaving its estimated 48,000 employees jobless.

A sale had seemed impossible. Mr Raju, two of his brothers, four Satyam employees and two PriceWaterhouse India auditors are in jail facing charges of criminal conspiracy.

The company is facing a dozen class action lawsuits from angry investors in its American Depository Receipts. Its market capitalisation today is about one tenth the $7bn it was worth before the scandal.

Worse, the company’s true financial state remains unknown. Forensic auditors from KPMG and Deloitte are still restating its accounts in a process that could take months.

Yet the bidders, which aside from Tech Mahindra, included Indian infrastructure company Larsen & Toubro and US investment house WL Ross, went ahead despite the uncertainties. The board considered their technical bids, which gave an account of their governance practices and vision for Satyam, at 10am before opening the financial bids an hour later.

Tech Mahindra, at Rs58 a share, was far above L&T’s Rs49.90 a share and WL Ross’ Rs20 a share, ruling out the need for multiple rounds of bidding.

At around midday, sombre-faced L&T executives, who had been keen bidders given that their company already holds 12 per cent of Satyam, left the hotel. Tech Mahindra officials followed soon after. They are now waiting for approval from the Company Law Board for their bid, after which they will pay Rs17.6bn ($354m) for a 31 per cent stake in Satyam before putting in a public tender for another 20 per cent.

But analysts say this will be the easy part for Tech Mahindra. With about 25,000 employees, it is around half the size of Satyam. It has cash on the balance sheet of about Rs7bn but will need to borrow up to $300m to execute the sale at a time when credit is expensive.

“They are leveraging their balance sheet at the wrong time and could face a tough time raising debt but it’s the right strategic direction for the company,” said Shashi Bhushan, analyst with Pinc Securities in Mumbai.

Tech Mahindra was bullish on Monday, saying its bankers had fixed up financing and it would not need to borrow against Satyam’s balance sheet. It also needed to diversify beyond British Telecom, which owns 31 per cent of the company and contributes 60 per cent of its turnover.

The pair operate in different areas – Tech Mahindra in telecoms and Satyam in insurance, automotives and enterprise software.

“Tech Mahindra gets 75 per cent of its business from Europe, Satyam gets 70 per cent from the US,” said Vineet Nayyar, Tech Mahinrda’s chief executive officer, adding that their combined annual revenue was estimated at $2bn. Apurva Shah, information technology analyst with Mumbai brokerage Prabhudas Lilladher, said the price represented an enterprise value to sales of about one times, which he judged as reasonable compared with other software industry deals. But the transaction would test Tech Mahindra’s management.

“At the best of times it would be a difficult integration, now it will be even more difficult,” Mr Shah said. Others said the new management needed to act quickly to restore confidence, a point chairman Anand G Mahindra agreed with.

“I will personally talk to Cisco’s chief executive John Chambers and Citigroup’s CEO Vikram Pandit,” Mr Mahindra said, referring to Satyam’s major clients.


Источник: Financial Times

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