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

4 Comments / Bulk Deals, Chuckle !, Controversies, Corporate Governance, Information Technology, Infrastructure, Insider Trading, Interesting New Words, Investing Themes, INVESTOR MISTAKES, Reflections, Satyam : The Sordid Asatyam Saga, STOCKS, VALUATION / By

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

    2 Comments / Controversies, Corporate Governance, Information Technology, Insider Trading, Interesting News Sightings, Investing Themes, INVESTOR MISTAKES, Reflections, Satyam : The Sordid Asatyam Saga, STOCKS, VALUATION / By

    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 read more

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