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.