Courting Satyam

Satyam’s new board has appointed Goldman Sachs and Avendus Capital as investment bankers to vet the various options.

Satyam may be bankrupt, courtesy the fraud perpetrated by its founder B. Ramalinga Raju, but its human capital is attracting suitors keen on buying the company and scaling up their own related operations or adding a good business to their portfolio. The initial talk of Satyam having to be wound up has all but died down, with around half-a-dozen companies (by the time BT went to press) having hinted that they are keen to buy the outsourcing major, which has around 50,000 people on its rolls, or parts of it.

Among the suitors are engineering behemoth Larsen & Toubro, B.K. Modi’s Spice Group and the Hinduja Group. Others like iGate Technologies and Tech Mahindra would like to buy certain businesses of the firm.

L&T seemed to be the frontrunner: it had a 4 per cent stake in Satyam before Raju’s damning disclosures almost doomed the company, and has since increased its holding to 12 per cent through openmarket acquisitions. While L&T has not formally told the government that it wants to acquire Satyam, it admits it is considering that option. D. Morada, GM and the official spokesperson, says: “We are looking at the possibility of an acquisition.”

Why so? L&T already has an IT services arm, L&T Infotech, which had a turnover of $425 million in fiscal 2008 and has around 10,000 employees in India and abroad.

Says Morada: “It’s a de-risking business strategy for us. We are a diversified business conglomerate and I believe it allows us to grow even in an economic downturn.” The Spice Group of Modi, who brought mobile telephony to India in the mid-nineties, has already made a formal bid to acquire Satyam. Spice has diversified operations into mobile handset manufacturing, mobile software development, backoffice operations, entertainment and retail.

Modi feels there is an obvious synergy in operations between his group and Satyam and is ready to infuse upto Rs 2,000 crore in the company.

“The company requires Rs 2,000 crore as a bailout package. They should issue preferential shares which we could bid for,” says Modi. The group wants the government to auction shares to the highest bidder but is aiming for a stake of over 50 per cent.

Satyam’s government-appointed board, responding to the overtures, has appointed Goldman Sachs and Avendus Capital as investment bankers to vet the various options.

Says a Satyam board member: “The investment banker will advice on the best way forward—whether we should let the company be acquired as one, or split it into small and reasonable pieces and look for individual buyers for them.”

But there are stumbling blocks. Until the firm’s accounts are re-stated, prospective buyers are unlikely to sign on the dotted line. Points out L&T’s Morada: “We will take a final decision only after we have all the details. The valuation of the company itself would depend on its past liabilities and how much of these are transferred to the new owners.” The suspense begins…