Is Larsen courageous or foolish to hike Satyam Stake to 12%!?

Just two days ago,on January 22,2009,I blogged that Larsen, to save itself, is trying to save Satyam..I had opined that it would be foolish to spend an additional @ Rs 1000 crs to take a controlling stake unless some protection was provided from contingent liabilities of the class action law suits in USA which could materilaise into hundreds of millions of dollars of Liability

And what does Mr A M Naik,CMD of Larsen do !?…Yesterday,he goes and raises Larsen’s stake in Satyam to 12%…39 million shares were purchased on the NSE at Rs 34.52 per share,aggregating Rs 134.73 crs and another 12 million shares were obtained at Rs 35.07 per share on th BSE,aggregating @ Rs 42 crs….So that’s another Rs 177 crs spend on Satyam Shares

This brings down the Larsen’s Average Holding cost per Satyam Share to Rs 80 from the earlier Rs 157… The total exposure is now over Rs 600 crs

So why did Mr Naik do this !?…After canvassing for political support for his Buy-Out Bid of Satyam,does he know something we don’t ? Is there some assurance or some tacit understanding between him and the government that some protection will be provided to insulate the Acquirer of Satyam from being exposed to the Contingent Liabilities of Hundreds of Millions of Dollars !…Would this not then be Insider Trading !?

This could explain his courage…otherwise unless there is clarity on protection from the contingent liabilities,it is foolish to buy More into Satyam

A Larsen Spokesman stated that the idea of rasing the stake was to average the Holding Cost and to strengthen it’s position to influence the Satyam Board….Real Reasons could well be to pre-empt any other Bids for Satyam as well as some prior understanding as spelled out above.

Shareholders have not taken it kindly and Larsen’s Share Price has dropped to Rs sub Rs 650 levels

If it purchases another Two Million Shares or 3% in Satyam to take it’s stake to 15%, Larsen will trigger the mandatory Open Offer to acquire atleast another 20% of Satyam’s equity from the Shareholders..that’s another 134 million shares…As per SEBI Formula the Offer has to be at the Highest of several Price parameters,which include the highest price it has paid to acquire Satyam…I believe this to be Rs 167…Therefore Larsen will have to shell out over Rs 2200 crs to acquire these 134 million shares….Surely it must be mad !

Media Reports suggest they have approached,or will approach SEBI to waive this Open Offer or allow the Offer Price adjustment to current Market Price of Satyam of @ Rs 40,at which Larsen will have to shell out only another Rs 536 crs for the Open Offer…..Even then the Exposure of Larsen would be close to Rs 1200 crs for a 35% quity stake…otherwise it would have been @ Rs 3000 crs

Larsen may go ahead to buy another 3% in Satyam only if SEBI  accedes to this request.

It would be interesting to see if SEBI accedes to this request.It is a sure test of it’s Independent functioning and it’s duty to protect the Minority Shareholders….free from any influences of any sort !…hoping for too much perhaps !

What if this whole Satyam Bid Game comes to naught ! if there is no way to escape exposure to high contingent liabilities in Satyam !…Larsen and Mr Naik,you are putting Larsen out on a Limb here !…You’ve already invested @ Rs 600 crs in Satyam…….the Risks far outweigh the Advantages at this stage…I hope it’s not an Ego Issue !     

I Love Larsen…It’s a Great Indian Icon….and I don’t want to see any of you hurt…Mr Naik,you have nurtured Larsen into the giant it has become…you protected Larsen Shareholders by fighting for a Higher Price when the Cement Demerger to UltraTech took place….The swirling Satyam cesspool has already claimed many victims…I don’t want to see you as it’s casualty…Bad Investment is one Issue…But Opening Grounds for Speculation of all kinds is quite another Blemish….your Infotech Arm,L & T Infotech has already faced accusations of operating a parallel Illegal International Telephone Exchange for years that bypassed the Indian Telephone System and caused Crores in Lost revenue to our Government

Satyam,may be a small fraction of Larsen’s overall operations,especially in light of the Great Potential that Larsen is planning to exploit in the nuclear field,after the recent signing of the Indo-US Nuclear Deal…But by Investing Hundreds of Crores in Satyam and posiibly thousands , every Larsen action in this regard will come under deep speculation and scrutiny 

I just hope Mr Naik,you know what you’re doing…I really don’t !

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