- Ramalinga Raju was promoter of Maytas Infra and properties .
- Huge cash reserves of Satyam were planned to be used to finance this deal without the approval of shareholders.
- Brings into question the role of the independent directors on Board, were they pimps of Raju?
- Raju says " Wanted to derisk the IT business model." But why invest in an class which is the highest risky in present times viz. real estate and infra.He believed the infra. space would be value accretive in the long term and hence their due diligence suggested putting on the cash into Maytas Infra. Valuation was transparent .
- Reaction was trigggered by discomfort on diversification. Why are they planning to diversify from their core business? Raju says " Decision was correct in the current context."and it was a unanimous decision of the board.
- Satyams promoters hold only 8% stake. Majority stake was held by institutional investors. They were not taken into confidence.
The article from ET explains the goings on in greater detail:
Satyam drops deal to buy construction cos17 Dec 2008, 0830 hrs IST, REUTERS Print EMail Discuss Share Save Comment Text:NEW YORK/BOSTON:
Satyam Computer Services Ltd bowed to investor pressure and canceled plans
to spend $1.6 billion to buy two builders, killing
the deals just 12 hours after they were announced. ( Watch )
The quick change in plans, which was announced late on Tuesday, came after investors
demonstrated their opposition to the deals by pushing shares in India's No 4 software
services company down 55 percent in New York Stock Exchange trade.
Tuesday's unusual turn of events began after the close of India's stock markets when Satyam
said it planned to enter the depressed construction industry by buying all of privately held
Maytas Properties for $1.3 billion and 51 percent of builder Maytas Infra for $300 million.
Satyam founder and Chairman B Ramalinga Raju and other insiders hold 36 percent in Maytas
Infra and 35 percent in Maytas Properties. Analysts questioned the motives of Satyam's top
executives, saying there was a potential conflict of interest because they hold stakes in
both companies.
They also said the acquisitions made little sense at a time when technology outsourcing
companies are preserving cash to help weather the global economic slowdown. The company's
stock recovered some of its losses after Satyam withdrew the offers, climbing 50 percent in
after-hours US trading.
But analysts said that Satyam may not be able to win back the confidence of investors. "The
company has lost investor confidence. Rescinding the offer does not restore that
confidence," said Janney Montgomery Scott analyst Joe Foresi. Satyam's shares, which closed
down $6.85, or 55 percent, at $5.70 on the New York Stock Exchange, jumped 50 percent in
after-hours trading to $8.89.
Even after the evening rally they were still down 28 percent from Monday's close of $12.30.
"There is no victory here because many shareholders lost, getting out of the stock today and
in some cases taking 50 percent losses," said Global Equities Research analyst Trip
Chowdhry.
"The credibility of Satyam's board of directors and its management is at rock bottom."
Satyam executives were not immediately available to elaborate on the company's statement
announcing that the acquisitions had been canceled. "In deference to the views expressed by
many investors, we have decided to call off these acquisitions," Ramalinga Raju said in a
statement.
The two builders work on infrastructure projects including highways, ports and water
treatment systems. Satyam helps develop software for businesses including General Electric,
Nestle and Qantas Airways. Ramalinga Raju originally promoted the deal by saying it would
"de-risk" Satyam's core business in IT services. But analysts responded using unusually
harsh words as investors fled the stock.
"This is outrageous and very frustrating," said Jefferies & Co analyst Sachin Jain. "This
clearly raises questions about what kind of corporate governance you have in other Indian
companies. That could hurt foreign investment." JP Morgan cut its recommendation on the
stock to "underweight" from "overweight" and slashed its price target on the shares that
trade in India to 175 rupees ($3.68) from 475 rupees.
Janney Montgomery Scott reduced its recommendation to "neutral" from "buy," while S&P Equity
Research cut its rating to "hold" from "buy." "They were insensitive to global corporate
governance standards. Their largest shareholders impressed that upon them," Susquehanna
analyst James Friedman said after Satyam quashed the deals.
"It was an error in judgment on their part," Friedman added. "It would have been worse of an
error not to rectify it."
And another one which shows how company money was being planned to be siphoned off for within the family welfare. (ET - 15th Dec 08)
Deal may give Raju's sons room in Satyam17 Dec 2008,
HYDERABAD: Last June, when Rishad Premji, son of Wipro founder Azim Premji, entered Wipro’s
payrolls, ET had quizzed Ramalinga Raju if he had any
plans to induct his sons Teja B Raju and Rama B Raju Jr into Satyam.
And pat came the reply from the doting 54-year-old father: “Even if I ask them, they will
not come. They are running more exciting businesses. They’re definitely not joining Satyam.”
That may not be true anymore. The “exciting businesses” his sons, who are said to be in
their 30s, have been running are Maytas Infrastructure and Maytas Properties, which Satyam
is now acquiring for $1.6 billion in a deal which has slammed by critics as lining the
family’s pockets.
Teja Raju, vice-chairman of Maytas Infra, holds an MS in engineering from the Carnegie
Mellon University, and was among the young entrepreneurs selected to meet George W Bush when
he visited Hyderabad two years ago. Rama B Raju Jr, vice- chairman of Maytas Properties, is
an MBA from the Ross School, University of Michigan. “They are very much like their father,
focused on their businesses and working 24x7. They are not at all flamboyant and prefer to
keep a low profile,” says a Satyam insider.
So does the Maytas affair mean that his sons could occupy Satyam’s corner room? A year ago,
in an informal interaction with ET, Mr Raju didn’t seem to encourage the idea. “We discuss
it (Mr Raju’s succession planning) all the time. And these alternatives could also be
outside the Satyam’s founding promoter group,” Mr Raju had said.
But with the two Maytas businesses now set to be part of Satyam, nobody can be too sure. For
a group that made a “naïve” decision to move into IT from construction and textiles,
anything is possible.
Reacting to periodic speculation about Satyam being a likely takeover candidate, Mr Raju had
categorically denied having either a direct or indirect dialogue of any kind with any
company. “In a world where people are looking at exciting M&As, it is understandable that
there is curiosity, but there is no reality to it,” he had said. As far as investors in
Satyam are concerned, Tuesday’s announcement was more than real: it was surreal.
