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Satyam Drops Acquisition of Maytas Properties & Maytas Infra

17 December, 2008

Satyam Computer Services has decided to back off its proposed buyout of promoter group companies Hyderabad-based Maytas Properties and Maytas Infrastructure. “We have been surprised by the market reaction to this decision even though we were quite positive about the merits of the acquisition. However, in deference to the views expressed by many investors, we have decided to call off these acquisitions,” said Ramalinga Raju, Satyam Chairman, in a release.

The two Hyderabad based firms – Maytas Infrastructure and Maytas Properties – are owned by Raju’s family and friends. The money from the deal would have gone to the promoters as it was not a fresh issue of shares. The announcement of the deal attracted a lot of shareholder ire and also raised questions about corporate governance.

Satyam had agreed to acquire 100% stake in Hyderabad-based Maytas Properties for $1.3 billion and a 51% in public listed firm Maytas Infra for $300 million. The total deal value was $1.6 billion (Rs 8,000 crore). The deal would have wiped out all the surplus cash on the books of Satyam, which is estimated to be $1.2 billion. The deal would have required Satyam to take up debt for the acquisition and also assume the debt of the two companies.

The American Depository Reciepts (ADR) of Satyam fell by more than 54% on early trade on Tuesday, losing more than $2 billion of its market capitalisation.

The promoters hold a 8.5% stake in Satyam and institutional investors form a bulk of the shareholding in the company. Templeton Mutual Fund, Reliance Mutual Fund and SBI Mutual Fund voiced their dissent over the deal. Templeton went ahead to say that they will block the deal at any cost.

Reactions from Investor Community

“We believe this decision by the Satyam management is against the majority of the shareholders. It is not good for the long-term benefit of the company and they should learn from the message delivered by the market, which is valuing our company at lower than the cash on the balance sheet. We urge the management to cancel this decision ,” said ICICI Prudential Asset Management chief investment officer Nilesh Shah.

“From the foreign investors’ perspective, the image of Corporate India would be dented in a big way,” said Reliance Mutual Fund executive vice-president Sunil Singhania.

“The decision…will likely go down as one of the worst corporate governance events in India,” CLSA analysts Bhavtosh Vajpayee and Nimish Joshi said.


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9 Comments
Srinivasan . 6 years ago

So what is new? Lot of Promoters of listed Indian companies are known to deal in such transactions. Also appointing family members from the second & thirds generations to the board of such companies & taking on friends & relatives at senior management levels at hefty pay packets is common.

Jack . 6 years ago

I am really surprised that Vinod Dham [ Pentium Guy ], Rama Mohan Rao [ ISB Dean ] and other eminent folks on the BOD let this happen in the first place.. These Trophy Board of directors should be removed from the board and replaced with people who can work for the shareholders.

Arun Kumar . 6 years ago

This is the one of the most outrageous management thinking that we have come across in the recent times. It also proves that the company is just managed by the brothers alone and that the other top leadership voices are either silent or heard only when it approves the decision of the brothers. Satyam has lost the respect it built over a period of time. Credibility is earned in drops but lost in buckets. I do not think people will ever look at the Raju brothers with the same level of confidence or respect.

SWAMINATHAN GANESH . 6 years ago

I am not surprised at all by these actions. We know for a fact that in a majority of our listed companies the Board of Directors are dummies in the hands of the promoters – such Boards are to be referred to as ‘Blackboards’

The honorable members of the Blackboard of Satyam owe an explanation as to how a family which owns only 9% of the equity of the company can influence its members to approve such an atrocious scheme to line the family’s pocket with all the cash in the Balance Sheet. Nice deal eh!.

In Tamil there is a very pithy saying ‘Take a free cocoanut from the wayside shop and offer it to Lord Ganesha in prayer’. Mr Ramalinga Raju’s family was looking for a free ride and nearly got it.

Thank God we have vigilant foreign shareholders – for Indian mutual funds and their vaunted fund managers are pliable and would not have had the guts to object to such a decision

I call upon all shareholders of Satyam to dump their shares in the market and bring this Blackboard down on its knees. Shareholders, vote with your feet!!

Also let us complain to the SEBI to investigate Sathyam as to whether there are any more such corporate governance skeletons in their cupboards

S GANESH

S GANESH & ASSOCIATES

Company Secretaries

1B OAKLAND (REAR BUILDING)

17 MALONY ROAD, TNAGAR CHENNAI 600017

PH: 044 2431 1974 / 4212 2694 (O)

FAX: 044 4212 7034

MOBILE: 98840 24311

Email: ganeshfocus@gmailc.om

Ram Shankar . 6 years ago

This is begging for a Class Action lawsuit against the governing board for aiding and abetting this HIGHWAY robbery. Why should India complain about dacoity when we have thieves and low-lives like Ramalinga Raju & his board at the pinnacle of Indian industry. If there is a Class Action Lawsuit, count me in as a BURNT individual investor. We have to stop such nonsense for the sake of the millions of investors in India.

Ravikumar . 6 years ago

SATYAM synonymous to Ramalinga Raju and would have lead the company better and added much more to the Shareholder Value if investors leave at the descretion of the Board of Directors. Infact tehre is an indian angle to this issue that can not be understood by the so called Accounting masters — Ravikumar

VIVEK SETHIA . 6 years ago

The whole actions and inactions relating to the deal shows the relevance of following:

1. Actual Role of Independent Directors

2. SEBI’ Valuation Norms for Listed Companies and also of valuation under CCI Guidelines which are applicable for unlisted companies.

Since the Company has retracted its decision to go ahead with the deal there is hardly any chance of any action against the company even though there may be an enquiry.

But action lies under Section 297, 397 and 398 of the Companies Act, 1956 if they had stick to the transaction.

Ram Shankar . 6 years ago

Ganesh, you are absolutely dead on in your assessment. The Indian institutional investors are a gutless, feckless, spineless lot. I hope Franklin Templeton mounts a serious effort to oust the current management and the board. If there ever was a case for fiduciary irresponsibility, this is it.

The after-the-fact explanations from the company management and the near-total silence from the so-called ‘independent’ board for this fiasco borders on farcical. The conflicts of interest questions alone was enough to scuttle the deal, irrespective of any other merits on which it should be considered. To hold 8% and to attempt siphoning off $1.8B is as brazen as it can ever get.

Hey, India Inc. – your atrocious behaviour is why the politicians behave the way they do.

Analyst . 6 years ago

AT any price, the deal was not an appropriate use of cash on Satyam’s balance sheet. Satyam’s ROE, ROA and net margins are all above 20% while all of those ratios for Maytas infra is below 10% which makes it the worst use of Satyam’s cash.

Simply put, it is equivalent to a Jewelry store owner buying a “Chai ki Tapri”. Obviously the revenues and earnings per share of the Jewelry store will increase but the net profit and return on invested capital will decline drastically since selling tea is not as profitable a business as selling Jewelry. So the question was whether the Jewelry store owner should buy another Jewelry store or waste money on a “Chai ki Tapri”.

Best Regards,

http://indiavest.blogspot.com

Satyam Drops Acquisition of Maytas Properties & Maytas Infra

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