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Larsen’s CMD, Mr A M Naik tries to justify increasing stake to 12% in Satyam

This is a gist of the Conference call that Larsen organised today to justify and clarify the 12% stake in Satyam

  • L&T management clearly stated that L&T is no longer just an E&C company. It’s businesses span a range of activities in manufacturing as well as services, including heavy engineering, manufacturing,  power, process engineering and financial, IT and engineering services.
  •  L&T Infotech, with revenues of US$400mn in FY08, has been in the IT services business for 10 years and hence, the acquisition of a stake in Satyam is not an unrelated diversification for L&T.
  • L&T acquired the 1st tranche of 3.95% stake in Satyam after the announcement and subsequent cancellation of the proposed acquisition of Maytas Infra and Maytas Properties by Satyam, but before the news of fraud by Ramalinga Raju was announced. The average market price of Satyam at which the stake was acquired was Rs 174/share.
  • The 2nd round of acquisition of ~8.09% was completed on January 23, 2009 at an average price of Rs 34.share. L&T now holds a 12.04% stake in Satyam, at an average price of Rs80/share.
  • The initial stake was acquired with an intention to form a strategic alliance with Satyam for targeting clients jointly, especially in areas where L&T Infotech and Satyam were competitors.
  • On disclosure of the fraud by the ex-Chairman of Satyam, L&T decided to increase its stake with a view to preserve the value of the already acquired stake and to have a say in any major action the new Board of Satyam would decide about the company’s future
  • L&T’s decision to acquire the additional stake was based on its assessment (and feedback from various stakeholders in Satyam) of Satyam’s demonstrated track record, trained manpower and valuable client relationships.
  • L&T believes that major clients are unlikely to terminate contracts for two reasons – one, most clients are satisfied with Satyam’s services and would likely continue if issues of governance etc are addressed wby the new Board and two, the prohibitive costs of transition to new vendors.
  • L&T’s decision to increase its stake was also in part, influenced by the knowledge gained that Satyam did not have any debt on its books and all its properties were mortgage free and that Satyam has in its possession, 250 acres of land with clear titles.
  • On potential/contingent liabilities, L&T management is reasonably confident of no material impact of the UPaid case on Satyam. However, the management is yet to assess the impact, if at all, the class action suits filed against Satyam in the USA.
  • L&T has acquired the 12.04% stake in Satyam through L&T Capital, which is the designated vehicle for acquisition of all such strategic stakes.
  • The other strategic acquisitions made by the company in the recent past include NIIT Technologies (~5% stake to access markets in Europe where NIIT has a strong presence) and Kalindee Rail Nirman Engineers (~14.5%, to leverage Kalindee’s capabilities in EPC and allied services for Railways).
  • The management clarified that the Satyam acquisition, being strategic in nature, L&T Capital will not be providing for any MTM losses in its books.

An immediate Scenario comes to my Mind ! and Questions on this too!

Mr Naik,you stated today that with 5% to 6% that you had in Satyam and Ramalinga Raju’s 5% to 6% you both can venture together for more Business….. Questions that arise

  • From who have you bought the initial 3.95% stake in Satyam?
  • Was this acquired stake the pledged shares of Ramalinga Raju and other promoters !?
  • In this case did you or anyone in Larsen & Toubro Group talk to Ramalinga Raju or other promoters or even to the Lenders to Raju before you acquired this stake !?
  • Were you given this assurance of a joint venture or marketing for Clients by Ramalinga Raju or Satyam or anybody representing them!?.. surely it could not be a unilateral thought from only your side!… if there was a dialouge then it is obvious you were being falsely led to believe alot of things and given fradulent assurances for them
  • If you have acquired the Pledged Stake then do you not realise that Ramalinga Raju and his co-promoters stake will go down by this extent of 3.95% to a very minimal Percentage !?, in which case how can you state that both of you would be holding 5% to 6% and venture for new clients together !?
  • Did Ramalinga Raju actually await the closure of this sale of 3.95% Satyam Stake to Larsen by January 6,2009 before confessing to Fraud on January 7, 2009 ?  

The More I look at it, it clearly seems that Larsen actually bailed out Ramalinga Raju by buying 3.95% stake at an average of Rs 174 ! Why !? 

Also you state, Mr Naik that you are taking a calculated risk by increasing stake to 12% in Satyam… Larsen is a strong core Indian Icon… why does it need to take such a calculated risk now!?… Can’t Larsen await some clarification on the Class Action Lawsuits filed in USA before commiittng more and more Hundreds of Crores to Satyam?

While Satyam has soared by 20% to Rs 46 today on the back of Larsen support, the Share Price of Larsen has turned even more negative to Rs 633… I reiterate, Mr Naik, as I did in my Blog on January 24, 2009 on Larsen and Satyam, please don’t make Satyam an Ego Issue and don’t keep on pouring good Larsen monies after Bad !… unless you are able to assess with a great degree of certainty and comfort, the quantum of claims that may arise because of the US Class Action Suits against Satyam


4 thoughts on “Larsen’s CMD, Mr A M Naik tries to justify increasing stake to 12% in Satyam”

  1. For now, the only thing that L&T management seems to be interested in is a face-saver so that they would be able to face its shareholders. They are neither interested in acquisition nor any strategic alliance. They realize that they have blundered and are now trying to package it as some kind of a master-stroke.

    The face saver maybe in the form of a MTM profit or a smaller MTM loss. If even that does not happen then either AM Naik or Deosthale or someone else in the management will be axed.

  2. The Satyam episode may end up like the Global Trust Bank. Government ended up handing off GTB to Oriental Bank, wiping out GTB shareholders. Here, govt may hand off Satyam to L&T, wiping out Satyam shareholders. In the mean time many innocent shareholders who are following L&T may be headed to the chopping block. Yet, L&T may end up the winner, not the other shareholders.

  3. This seems to be a reasonable assessment of the important decision taken by Naik. It reminds of a joke about a man who recovered his lost TV, but had to spend twoce the price of a new one to prove in the police station that he was the rightful owner of it. These mark to market losses on acquisitions are similar to sunk costs that mount up in phases!

  4. Just saw a sensible comment by Rajesh Baheti of Crossseas Capital on NDTV Profit that SEBi should step in to put a lid on all these irresponsible comments being made by top management of Larsen…It began with a Portfolio Mistake and now has become a Takeover !

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