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Satyam Is Approached By Potential Suitors: Board Member

20 January, 2009

Satyam Computer Services Ltd has been approached by potential buyers, a member of its new board said on Tuesday, while concerns grew about the business prospects for the fraud-hit outsourcer.

Some clients of Satyam, at the center of India’s biggest corporate scandal, have told the company they want a contingency plan in case things do not stabilize in the next three months.

“All I can say, we have been approached by potential buyers,” Tarun Das, one of six members of Satyam’s new government-appointed board, told reporters, adding the board, which met on Saturday, had not discussed a buyer.

Satyam, India’s No. 4 software services exporter, was plunged into crisis after founder Ramalinga Raju resigned as chairman earlier this month, revealing profits had been falsified for years and $1 billion of cash on the books did not exist.

Engineering and construction company Larsen & Toubro, which had built up a 4 percent stake in Satyam ahead of Raju’s disclosures, was seen as a possible partner, with the Economic Times reporting it had appointed Japan’s Nomura to advise it.

However, Y.M. Deosthalee, chief financial officer of Larsen & Toubro, told Reuters the company had not appointed any merchant banker for a possible deal with Satyam, although he said it had been approached by several bankers.

“We have not appointed Nomura,” he said.

On Monday, Satyam, which specializes in business software, said U.S.-based State Farm Insurance Co had canceled its contract, and there were signs other customers had concerns.

“In a few isolated cases, customers have been engaged with us to understand the process of transition,” a spokesman said in an emailed response to questions from Reuters.

“They have said they would like to have a contingency plan, should it be required, if things don’t stabilize within the next 90 days,” he said.

Local media has reported that some big customers of Satyam, which has corporate giants such as Nestle and General Electric as clients, may terminate their projects.

“In this difficult process of saving the company, Satyam may lose two or three clients,” said K.K. Mital, head of portfolio management services at Globe Capital.

“Clients are definitely concerned and it depends on the kind of confidence-building measures the company takes.”

On Saturday, Satyam’s new board said it was still looking for a new chief executive and chief financial officer.

Analysts said outsourcing sector leader Tata Consultancy Services and No. 2 Infosys Technologies could benefit from Satyam’s woes, although both have said they are not trying to poach its clients.

On Tuesday, Tata Consultancy said it had won a multi-million dollar, multi-year deal from Italy’s Ducati Motor Holding.

On Monday, the government said the probe into Satyam had widened to include Maytas Properties and Maytas Infra, two companies in which Raju and his family hold stakes. Maytas is Satyam spelt backwards.

Satyam tried to take over the two companies in mid-December in a $1.6 billion deal, before hastily backing down in the face of a shareholder revolt. In his resignation letter, Raju said it was a final attempt to resolve the problem of fictitious assets on Satyam’s balance sheet.

The Economic Times said on Tuesday, citing an unnamed source familiar with the fraud probe, that Satyam’s headcount could have been inflated by 15 percent to 20 percent to siphon off money as salary payments to non-existent employees.

Raju and his brother, who was Satyam’s former managing director, and the company’s former chief financial officer were moved to police custody for questioning in Hyderabad on Sunday morning for four days after spending a week in jail.

Under custody, the accused are held in a police lock-up to help investigators.

A. Sivanarayana, additional director general of police in Hyderabad, said any request for an extension of police custody beyond Thursday morning would depend on how the investigation progressed.

Shares in Satyam, which have tumbled about 85 percent since the scandal broke, ended up 5.5 percent at 26.85 rupees in a Mumbai market that closed down 2.5 percent.

(Additional reporting by Ami Shah and Prashant Mehra in MUMBAI and Surojit Gupta and Rajkumar Ray in New Delhi; Editing by John Mair and Andrew Macdonald) 


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Satyam Is Approached By Potential Suitors: Board Member

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