Larsen Desperate to Save Satyam !..to save itself !

On January 9,2009 I had blogged that Larsen has jumped the Gun in Investing in Satyam and has lost over 85% and over Rs 300 crs in just two days after Ramalinga Raju’s confession on January 7,2009

Check it out again.Click on http://www.gauravblog.com/?p=431

I had even suggested a possibility that Larsen had picked up the Satyam Promoters pledged shares sold by Lenders…and perhaps Ramalinga Raju awaited this sale before making the Confession

A response to this blog that there could be a possibility that one of the Lenders was related to one of the Directors of Larsen and this Lender was bailed out by Larsen Monies by buying out their Pledged Shares got me thinking

I checked the Larsen & Toubro Annual Report and found that the Whole Time Director & Senior Executive Vice President and CIO in charge of IT and Technology Services is one Mr V K Magapu….Larsen’s Investment of over Rs 400 crs by purchasing 2.69 cr shares to take a 4% Stake in Satyam,even after the Satyam -Maytas Controversy was still burning,despite reversal of the proposal,defies Commonsense and Sanity.As CIO and in charge of IT and Technology Services,Mr Magapu surely must have been involved in recommending this Investment…Why ! ?….On Confession by Ramalinga Raju on January 7,2009,Larsen’s Investment in Satyam eroded over 85% in just two days and Larsen is now sitting on a Notional Loss of over Rs 350 crs !

Chairman & Managing Director of Larsen & Toubro,Mr A M Naik must have slept well only till the night of January 6,2009….he ‘s been desperately trying to save his Investment in Satyam by offering to buy out Satyam ! He’s galvanising support from Institution shareholders like LIC and even the Ministers and is making a presentation to the New Board of Directors of Satyam today and tomorrow

What Timing ! Mr Naik just received the ET Business Leader of the Year Award last week and this Satyam Loss !

Naik needs to explain why did Larsen,perceived by all as being responsible, conservative and risk averse in it’s operations,dare to venture into controversial Satyam by buying shares from December 23,2008 to January 6,2009…Do Vested Interests exist? Also why this turnaround now !? After Ramalinga Raju’s Confession on January 7,2009 Mr Naik came on the business channels to assure that Larsen was merely an Investor in Satyam and had recently got a 4% stake and had no plans to buy it out or increase it’s stake !

The Irony is that Larsen,to save it’s Investment in Satyam,is going the whole hog to buy it out itself !…This would mean taking a controlling stake in Satyam…although Valuation would depend on restated accounts of Satyam,my guess is that Larsen would have to put in an additional Rs 1000 crs into Satyam ( 35 crore Nos of Shares @ Rs 30)…they need to take Larsen Shareholders into confidence before doing so !

The Problem, the way I see it and also blogged about in my recent blogs, is how can any Potential Buyer protect itself from Contingent Liabilities that are arising from the class action suits filed by ADR Investors in USA against Satyam …If succcesful,the claims would run into Hundreds of Millions of Dollars

In an earlier Blog I had suggested that,subject to legal diligence, a seperate Company be created and Satyam Clients and genuine employees be shifted to it and Satyam Shareholders be given free shares in this new company in proportion to their Satyam Holding…The New Company would not be exposed to the Class Action lawsuits in USA…In this current form Satyam faces colossal Liabilities ahead and in may just lapse into a Coma ! 

Now we know that over 10000 of the 53000+ Employees simply did not exist !…My Blog on Nature of Possible Accounting Entries assumes this too !…..so the new CEO and CFO will have to deal with a less number of Staff atleast !…some consolation ! 

Oh ! and By the Way,it’s not just Larsen who wants to buy out Satyam…there are a host of interested Buyers out there showing interest…but they need clarity and protection from futures liabilities….Satyam is reflecting this Interest by climbing back towards Rs 30…yet a far cry from Rs 250 levels in Mid December and even Rs 175 on the morning of January 7,2009

If somehow our Government and Legal Eagles work out some protection from future liabilities for those who Buy Out Satyam,you can surely expect Satyam share Price to spurt even more 

On restatement of accounts,surely the networth of Satyam will be in negative territory…it would be interesting what would then be it’s Valuation at which a Potential Buyer,like a desperate Larsen, will bid.

AM Naik is clear…the buyout of Satyam has to be decided now…a month or two down the road it may be too late to salvage and save Satyam as it would have lasped into irreversible Coma and Larsen may lose all of it’s Investment of over Rs 400 crs in it

Mr Naik,it was a foolish and stupid of Larsen to Invest in Satyam,knowing the controversies in it…..Now,if you are unable to get protection from future liabilities of Satyam,it would be even more foolish to pursue a buyout as you would be taking a huge risk by investing more Good Monies of Larsen after Bad and your Shareholders will not forgive you…Your share price has already reflected this worry by crashing in days from over Rs 800 to test Rs 700…It may crash further if you risk further exposure to Satyam in an attempt to salvage your current Investment of over Rs 400 crs in it already !…averaging to buy out Satyam now at lower levels will work only if there is 100 % certainty that Larsen will not be exposed to Satyam’s  risk of Hundreds of Millions of Dollars of Contingent Liabilities materialising in claims….As of now,I can’t see how exposure to this Contingency can be avoided with any degree of certainty  !  

One thought on “Larsen Desperate to Save Satyam !..to save itself !

  1. Thanks Gaurav. I was wondering if I was being just too contrarian by thinking about this angle to L&T’s blunderous decision. Now you seem to have researched a bit about some Mr. Magapu.

    Regards the decision itself, if any one has tracked the history of L&T, one would know that behind sell-off of its cement division, glass division and hiving off L&T Infotech as a separate entity all by itself, was a strategic decision of wanting to focus on its core competancy..Infrastructure. How does its decision to get into Satyam fit in its strategy of focus? If any way they wanted to be a diversified entity then why did they sell off their other non-E&C businesses? Or is it that they keep shifting their strategy on ad hoc basis, in which case it can’t even be called strategy.

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