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Satyam: well done

Tech Mahindra’s successful bid for Satyam Computers marks a decisive stage in the ongoing process of salvaging India’s fourth largest IT company. It was just over 100 days ago that Satyam’s chief promoter Ramalinga Raju confessed to a massive financial fraud driving the company to the brink and calling into question corporate governance practices in the country. It is to the credit of the new government-appointed board of directors, the regulators, the ad visers, and the consultants that the beleaguered company could be given a fresh lease of life in such a remarkably short time. As much as the carefully orchestrated, transparent bidding process that culminated in Tech Mahindra — a unit of a dynamic group with an excellent track record — clinching the deal, the deft handling of the crisis has several salutary messages to convey. The ability of India’s legal and regulatory systems to deal with corporate frauds swiftly and efficiently can no longer be doubted. It is commendable that primacy was given to the task of putting the company back on its feet by inducting a strategic partner and that the board of directors, besides others engaged in the process, were able to get serious players interested in bidding for stakes, although they were not in a position to provide complete data about the company. The accounts are in the process of being restated, and the magnitude of possible claims on the company, especially in the class action suits and suits for breach of contracts in the United States, is still not clear.

Although Tech Mahindra’s winning bid of Rs.58 is just one-tenth of Satyam’s share price about a year ago, it seems to be a fair price in the changed context. The acquirer has to pay initially Rs.1,756 crore for 31 per cent stake and another Rs.1,132 crore later, through the mandatory open offer, to pick up 20 per cent more. Raising the required money should not be a problem, given that it has the option of inducting a strategic investor and merging Satyam with itself at a future date. Above all, there is considerable scope for reaping the synergies between Tech Mahindra and Satyam. Tech Mahindra is strong in Europe, while Satyam’s strengths lie in the U.S. and parts of Asia-Pacific region. A major player in telephone software segment, it brings with it the dynamism and managerial resources of the Mahindra group to Satyam whose focus has been on manufacturing. The urgent task before the new entity is to regain customer confidence. No less challenging will be to integrate Satyam’s 40,000-plus employees. What would then remain would be to bring the perpetrators of the fraud to justice speedily.

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