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 ?

Stock Price  of Tech Mahindra has shot up past 12% to Rs 360 today,while Satyam Share Price too has been bouyant at Rs 50,up nearly 10%….Larsen & Toubro has seen it’s price initially fall,and then recover…It’s down just Rs 8 at Rs 824 at 12.52 pm right now

 

The Big Uncertainty and the Big lack of Clarity remains on the outcome of Satyam’s USA Lawsuits…The Risk is so high as to threaten the very survival of Satyam…Tech Mahindra has knowingly taken this risk…It’s an aggressive play…the distress price of Satyam was just too tempting an opportunity perhaps even after considering the sizeable risks attached

Business Acumen or Foolishness ?…Only Time will tell

Mr Anand Mahindra has taken this risk…I would not have…..What would you have done ? 

So,those who have been playing Satyam from Rs 15 to Rs 50,should they exit now !?….Well at hypothetical Rs 500 crs PAT the EPS would be just over Rs 5 on expanded capital…that’s a 10 PE at todays price…a Rs 1000 crs PAT would give a 5 PE….Take an informed call…Consider tax status too…If you wish to exit through the Open Offer,there would be no STT and therefore your short term gains will be taxed in your tax bracket rate and not at 15% …also Tech Mahindra may not buy out all your shares  

Restatement of Satyam Accounts is expected by June 2009…Maybe some clarity on a fairer Valuation would emerge then.    

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