The Suitors

It is close to three months since disgraced Satyam founder Ramalinga Raju
admitted in a letter to the company board about the fraudulent accounting in
Satyam. While everybody was pleasantly surprised by the swiftness with which the
Indian government moved to salvage the situationespecially the impact on the
rest of the IT industrythe progress in the last two months has been very
little.

With a board and a CEO in place, the least everyone was expecting was getting
to know the actual revenue figures. But let alone revenue and profit, the total
number of employees still remains a matter of guess.

The Bidding Drama

Well, to be fair to the Satyam decision makers, three months is not exactly
a very long time to find a suitor, after such a dramatic event. What, however,
is surprising is the progress made with the bidding process. Larsen & Toubro and
Tech Mahindra are two companies that expressed interest in acquiring Satyam,
just a couple of days after the scam broke out. After two and half monthsand a
formal bidding process in placethose two are the only contenders left in the
fray. In between, companies like Phaneesh Murthy-led iGate and BK Modi-owned
Spice Group did enter the fray by announcing their intent publicly but have
decided to withdraw. IBM, if some media reports are to be believed, was also
interested at one point but has not decided to pursue it further.

And one is not surprised by the decision of L&T and Tech Mahindra to pursue.
The persistence of L&T management is significant, despite the analysts giving it
a thumbs down. While the analysts are concerned about the short-term uncertainty
for a fairly stable engineering company like L&T, the decision of L&T management
to pursue the acquisition is really laudable. From among the names that we have
heardthose that have been in the fray as well as those names that have been
speculated by the media including the large Indian and American IT services
playersno one seems to be a better potential suitor of Satyam than L&T. L&T
already has an IT businessL&T Infotechwhich has synergy with two of the most
important lines of business of Satyamengineering services and SAP
implementation. The Satyam acquisitioneven if the company revenues are half of
what it projected before Rajus admissionwill still give L&T Infotech a big
push. It is Indias largest unlisted IT services entity and plans to tap the
markets as soon as the external situation becomes conducive for that. It has
already roped in a veteran IT industry professional as the CEO and this
acquisition will not only add to the business scale, but will help to
effectively combine L&Ts engineering relationships and Satyams engineering
services capabilities to build that business in a scale that the world may not
have seen before.

Tech Mahindra, a telecom focused IT firm, is also in the fray and we believe
makes an interesting case. While it (Satyam acquisition) will dilute its focus
in telecom, it will take it to the club of top five IT companies in India, even
while assuming that Satyams actual revenue is significantly smaller than what
was reported last. Also, this will enable parent Mahindra group to leverage its
engineering strength.

We believe both these firms are really the best among potential IT industry
players to assume the ownership of Satyam. Both are companies with strong
background in engineering, and solid track record in terms of stability,
investor confidence, and the image of being transparent companies. That is
something Satyam badly needs.

What, however, one is surprised about is not to see a few serious buyout
consortia in the fray. Satyam represents an ideal candidate for a private equity
consortium to take it private before turning it around for a listing again. But
the presence of a few of these consortia would have added value to the bidding
game.

What is badly needed at this time is some steps in estimating the actual
Satyam figures and making it public. That one step would restore a lot of
investor confidence and make the valuation transparent to the investors of the
listed bidding companies such as L&T and Tech Mahindra.

Shyamanuja Das

shyamanujad@cybermedia.co.in