What do Anand Mahindra and his stalwarts say about the Satyam Bid ?

This evening ,it was interesting to view live on Stock Channels,Anand Mahindra,Vineet Nayyar (MD of Tech Mahindra) and Bharat Doshi (CFO of the M& M Group) and make sense of their sense on being the highest bidder at Rs 58 for Satyam

  • Anand Mahindra reiterated that their’s was yet only the Highest Bid and not the Winning Bid…they would need to await CLB approval to confirm that they indeed had won
  • Anand Mahindra spoke of contacting each and every one of Satyam’s clients,like Vikram Pandit of Citicorp and GM to assure them of the highest level of Client servicing…..I daresay,these American Giants are battling for their own survival ! 
  • On how they arrived at Rs 58 as the Bid,Anand Mahindra refused to disclose the specifics ,but suavely stated that they preferrred to look forward and not look back to see who’s chasing
  • The bid at Rs 58 did consider the quantum of legal liabilities that may arise,but Vineet Nayyar parried a question to disclose the exact amount they had estimated…This is a calculated risk that TM has taken,stated Anand Mahindra…Nayyar hoped they are right on this but cannot be 100% sure or guarantee limited liability.
  • The bid at Rs 58 also considered the fact the the Revenues had dropped from US $ 1.8 b to US $ 1.5 b and further to US $ 1.3 b and the low margins are actually seen as opportunities to plug…However this would mean a monthly turnover of just Rs 550 crs and operating profits of Rs 10 crs at current margins…This is bad and simply does not support a valuation and bid of Rs 58 !…This would mean an EPS of below Rs 2 !…Satyam needs to earn at a net level Rs 750 crs to Rs 1000 crs PAT per annum to show an EPS of Rs 8 to Rs 10 to support a price of Rs 58….This indicates a strong trimming of the workforce..Covered in the last point below
  • Vineet Nayyar disclosed that both,Satyam and Tech Mahindra complimented each other in many ways…TM had 70% of Revenues in GBP and Euros while Satyam had 70% in US Dollars,thus providing a natural currency hedge…though there were 600 clients,none were overlapping…also TM has Telecom Domain expertise,while Satyam was competent in several other verticals
  • Bharat Doshi disclosed that the Rs 2890 crs required to fund the 51% stake would be funded by Rs 700 Crs internal accruals in TM and Rs 2200 crs had been tied up as debt with Kotak.TM’s Balance Sheet comfortably supported raising this debt
  • The Bid was supported strongly by all Boards…Mahindra & Mahindra,Tech Mahindra and even British Telecom
  • It is too early to decide whether the Satyam Workforce will be trimmed…With falling revenues,low margins,I am quite sure this will happen…If they lay off 10000 ,there will be saving of Rs 400 crs 

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Look at the Satyam bids !…helps you gauge the risk Tech Mahindra may have taken !

The 2 pm media meet by the Board of Directors of Satyam threw up some interesting facts about the Satyam Bidding Process

  • Larsen & Toubro bid was Rs 45.90/share for Satyam
  • Wilbur Ross’s bid was even lower at Rs 20/share !
  • The winner,Tech Mahindra, bid Rs 58 through it’s 100% subsidiary….the bid spread clearly indicates the wide ranging Satyam risk and valuation perspectives
  • Tech Mahindra can take over the management of Satyam immediately after Monies come in and the Company Law Board approves the bid…they do not have to wait for the Open Offer
  • Restatement of Accounts for the past Six Years will take a few more months…Both Accountant Firms retained are working towards this
  • Employees are 51000 of which 45500 are Satyam standalone,rest are contracted and associates
  • Satyam owns 450 acres of Freehold and Leasehold land in equal ratio…125 acres are over two Campus in Hyderabad City,one in IT City and the other is Satyam Technology Centre…These have been independently valued at Rs 1700 crs by three different valuers and Rs 600 Bank Loan arrangements with two Banks have been made against these two campus
  • Loan Drawn so far is Rs 300 crs,which they will repay from the bid monies
  • Larsen & Toubro Shares have a lock in of six months…so,can we assume, they cannot be tendered in the Open Offer 
  • It is upto Tech Mahindra to decide to bring in another Equity Investor or merge Satyam with itself…They cannot strip Satyam of it’s assets…This,I can tell you is,one of the provisions of the SASTA or Substantial Acquisition and Takeover Act.It prohibits asset stripping for Two Years after the acquisition or takeover 
  • If Tech Mahindra does not deposit the monies of Rs 1756 crs in the Escrow account and in the Company,in the determined ratio, within four working days…that’s by coming Monday,as tomorrow’s a Holiday,the second highest bidder will not be invited to come in…However,the Chairman of Satyam,Mr Kiran Karnik does not feels that this situation could occur.
  • As far as retaining the name ‘Satyam’,the Board has not suggested anything to the Winning Bidder…it will be their decision 
  • The mandatory offer will be at Rs 58 and the open offer process will be followed which would have to seek SEBI approval…The Open Offer would probably be inside two months…that’s by June 2009   

winning bid for Satyam is Rs 58/share…Many Questions yet stand

The Satyam Drama continues

The winning bid for takeover of Satyam is just announced…Tech Mahindra has emerged as the winning bidder with a bid of Rs 58 share through it’s subsidiary Venturbay Consultants…No other bid comes close to 90% of this bid…Thus other competitive bidders like Larsen & Toubro have bid below Rs 52.20

Tech Mahindra will have to pay Rs 1757 crs ( US $ 351 Million) for acquiring 30.28 cr shares and a 31% stake It will have to make the mandatory open offer now to acquire another 20% from the Satyam Shareholders

Due to SEBI largesse on flexibility of the Open Offer Pricing,quite certainly due to pressures from the Government and the bidders,the Open Offer Pricing will be Rs 58 per share and not at Rs 150 +,which it otherwise would have been ….This would mean another Rs 1132 crs (US $ 226 million) to acquire this 20% if offered to take Tech Mahindra’s stake upto 51%

Major Questions yet remain

  • Larsen & Toubro,the losing bidder,holds a 12% stake,which has cost them an average of Rs 80 per share….what will be their strategy now ?
  • US Giant IBM,walked out of the Bidding because of Satyam’s USA Lawsuits….The Liabilities can be significant…Hundreds of Millions of Dollars…possibly even a Billion Plus…This would break Satyam,if they do materialize
  • Issues of Client and Employee Continuity Remain…Many clients have left…some even absorbing the Satyam Team on their project to ensure continuity
  • Why did Indian IT Giants,Infosys,TCS and Wipro stay away from Satyam ? Will they rue a missed chance to buy a Big Company at distress price or do they have some experience and a better sense of what devastating missiles these USA Lawsuits can hurl at Satyam ?
  • Tech Mahindra may have won the bid,but have they not exposed themselves to Satyam’s USA Lawsuits ?

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Ernst & Young did Maytas Properties Valuation of Rs 6523 crs in just one Day !?

Just read a very interesting update on Maytas Properties in todays’ edition of Financial Express

Maytas Properties is facing the prospects of the Government taking it over the Board,just as they did for Satyam

The matter was being heard by the Company Law Board (CLB) and the company’s counsel suggested that the Government could appoint an observer or a Director on the Board…This was opposed by the Deputy Director,who represented the Government…He wants the Government to take over the Whole Board and thus the Company itself.

The Deputy Director made some interesting arguments on the Ernst & Young (E & Y) Valuation of Rs 6523 crs of Maytas Properties

  • There was a clear nexus between Father,Ramalinga Raju of Satyam, and Son,B Rama Raju,of Maytas Properties as they had relied on the E & Y Valuation to justify Satyam’s Proposal to takeover Maytas
  • This Valuation is Hollow as Maytas,as per government knowledge, has no land bank and has just a turnover of Rs 22 crs but the valuation was done at Rs 6523 crs
  • Government Alleges Fraud in the Valuation….E & Y has said in it’s Valuation report that they have valued all Maytas’s 31 projects in Chennai     ,Hyderabad,Bangalore and Nagpur and except for the Electronic City Project in Bangalore,land has been acquired
  • The fact is that Maytas Properties does not have any land.Some of it’s subsidiary companies have Development Rights,not lands….so the only asset the subsidiaries have are these rights
  • CLB Chairman,S Balasubramanian enquired whether E & Y did the Valuation in a Week..to which the Deputy Director replied ” No,the Valuation was done in a day only.”

So we have Two of the Big Four Accounting Firms facing bigtime flak in this sordid Satyam Saga…Price Waterhouse as Satyam auditors and Ernst & Young as Maytas Properties Valuers

What’s going to come out next !   

Will Satyam Investigations deliberately reach a Dead End !?

I’ve been reading R Jagannathan’s Columns in the DNA more frequently than before…As Editor of DNA,he is fearlessly and without favour coming across strongly in his Opinions…..does not hesitate to pen them while calling a spade a spade…surely a big burden to bear in these vested times ! 

I’ve met R jagannathan in a professional capacity before he took over at DNA…He had struck me then as a quiet and unassuming and knowledgable Journalist….Good to see him in this ‘Roaring’ Avatar ! 

This is how he opens his column today in DNA on the ongoing Investigations in Satyam

“The Satyam fraud investigations are meandering into irrelevance. A curious convergence of political, regional and business interests is conspiring to derail the probe.”

He names ‘Names’ and brings up a ‘Bihar’ connection with RJD’s Laloo Prasad Yadav and the Minister of Corporate Affairs,Prem Chand Gupta….He is scathing about Andhra Pradesh’s Chief Minister,YS Reddy….Congress can ill afford a scandal around him in an Election Year

R jagannathan goes on to say that the Satyam Investigation is headed towards a stalemate and truth would be the casualty…the probe would have reached a dead end

In light of obvious attempts to delay and derail the Probe it is no wonder that the Opposition created a ruckus in the Andhra Pradesh Legislature,with one MLA even attempting to clamber up to the Speaker and also tring to seize his mike !

Sadly,I would have to agree with RJ….it just looks we may not get to the bottom of the ‘Satya’ in Satyam…atleast anytime soon…maybe never !

But RJ…I’m sure that those,atleast most of them, on this Newly Constituted Satyam Board by the Government,will not hesitate to resign if they sense or encounter any interference from the Government,as suggested by you.They would not compromise…In this context,Narayan Murthy of Infosys,seems to have been wise in not accepting to become a Director on Satyam,citing a conflict of Interest 

Not surprised to hear shocking views of JR Varma on ‘Open Offer’ in context of Buy-out in this continuing Satyam Saga

I for one,was not surprised to hear the shocking views on revising the ‘ Open Offer’ Pricing guidelines of JR Varma…He is an ex-SEBI Member and had also headed their Corporate Governance Committee…..He is clearly building up the ground for the Government to direct SEBI to do exactly just this to facilitate Larsen

Mr Varma,was quite forceful in stating on CNBC 18 today that the  current pricing parameters for the mandatory ‘ Open Offer’ to remaining shareholders by the acquirer,once he buys 15% of the company’s equity should be revised….It is unfair,he states, that the acquirer has to pay the average of the last 26 weeks share prices…This parameter was created to protect Minority Shareholders and also that there was some level of distrust on the fairness and authencity of pricing in Share Markets…but for liquid shares,like Satyam,Mr Varma,is of the opinion that the Current Prevailing Market Price can serve as the basis

Mr Varma,you are clearly and perhaps deliberately missing the point here…Larsen made a mistake and then averaged Satyam…Mr Naik of Larsen has been openly canvassing for political,bureacratic and institutional support  in buying out Satyam as also tweaking the SEBI ‘Open Offer’ pricing parameters…Clearly ,Mr Varma,you are supporting this move….Are you being Led here ? or do you heart of hearts believe that SEBI Takeover Norms should be revised !?

The Point also here is ‘Insider Trading’…was Larsen Privy to some clear assurances from the government on both,issues of Legal protection from class action lawsuits in USA against Satyam and dilution of ‘Open Offer’ Pricing Formula ?….after which Larsen went ahead on January 23,2009,exactly just a month after it had began it’s disastrous 3.95% buying of Satyam shares at @ Rs 175,and picked up another 8% stake at Rs 40+…it now holds just above 12% in Satyam at an average of @ Rs 80 and is awaiting SEBI to dilute a key pricing parameter for the ‘Open Offer’ before it goes ahead and buys another 3% to trigger the ‘Open Offer’

Corporate Governance dictates that there should be full Transperancy  and a level Playing Field for all Investors…..Clearly some know more than the rest of us and are acting on it !

Many are making a mockery of many Issues here and taking a high Moral Ground….Trying to  shove a deliberately planned tweaking of the ‘Open Offer’ guidelines down our throats will only add to further distrust and disillusionment in the ‘Powers’ that are….It will be reverting back to a short sighted vision

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