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Desperate times call for desperate actions. India's fourth largest IT services firm Satyam Computer is acquiring 100% stake in Hyderabad-based Maytas Properties for $1.3 billion and is going to pick up a 51% in public listed firm Maytas Infra for $300 million. The total deal value is pegged at $1.6 billion (Rs 8,000 crore).

According to the deal, while Satyam will acquire 100% stake in the privately held Maytas Properties, it is going to buy 31% of Rajus holding in the public listed Maytas Infra and then make an open offer for another 20% stake. As of September 31, 2008, promoters held 36.64% in Maytas Infra. The price being paid to the promoters is fixed at Rs 475 per share, 1.25% discount to the closing price of the scrip today. The open offer will be made at Rs 525/share which is 7% premium to the ruling price as against the 52 week high of Rs 946.

The obvious question is what would an IT company do buying a construction firm? The missing link is in the ownership of Maytas. The two Hyderabad based firms Maytas Infrastructure and Maytas Properties represent the Raju family's old construction and property business.

Maytas is actually Satyam spelt backwards and is run by the two sons of Satyam founder S Ramalinga Raju. The decision is an even bigger surprise as Rajus had taken Maytas Infra public just one year back.

Does it mean, Satyam is investing into a firm to bankroll a company owned by its promoters?

The timing of the deal certainly indicates such a possibility as construction and infrastructure sector is facing tough times due to credit crunch. Unlike the case of Wipro (which incidentally also has the traditional FMCG business besides IT services) where the firm diversified into IT services business, Satyam is going backwards in this deal.

While there is nothing legally wrong for a promoter to buy out another group firm in which it has stake to consolidate businesses or building conglomerates, this deal might face Satyam investor's ire given the timing. At a time when other software services firms are busy consolidating their business presence in different IT verticals (HCL-Axon), Rajus are using Satyam's cash to buy themselves off. For Rajus it would be a clear gain, as they will continue to lead all the companies as they are doing today.

Maytas Infra is a 23 year old infrastructure development public listed firm and Maytas Properties is into development of residential township besides other urban infarstructure such as hotels, cinemas etc. For the half year ending September 2008, Maytas Infra had generated revenues of Rs 737.68 crore with net profit of Rs 36.89 crore. According to a statement issued by Satyam, the acquisition will derisk the core IT business by adding another vertical -- Infrastructure, for which it can provide software services.

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