Update I: The board of Satyam Computer Services has announced that it has selected Venturbay Consultants Pvt. Ltd, a subsidiary of Tech Mahindra as the highest bidder to acquire a controlling stake in the company. The selection is subject to an approval of the Company Law Board (CLB).
Tech Mahindra had bid at Rs 58 per share. There was no other bid within at least 90% of Tech Mahindra’s bid. Tech Mahindra and Satyam Computer Services have entered into a share subscription agreement, pursuant to which, Tech Mahindra will acquire 30,27,64,327 shares of the company, representing 31% of the share capital of the company, at a price of Rs 58 per share. Hence Tech Mahindra will acquire a 31% stake in Satyam for Rs 1,756 crore. Tech Mahindra would be given the management control of Satyam as soon it acquires the 31% stake.
Tech Mahindra will also have to make a mandatory cash tender offer to acquire an additional minimum of 20% of the enhanced share capital at a minimum price of Rs 58 per share. It will also have to make a public announcement of the public offer within 4 working days of receiving approval from the CLB for the preferential allotment and opening the public offer to tendering by shareholders and American Depository Shares (ADS) holders within 55 days from the date of announcement.
If Tech Mahindra fails to acquire 51% of the enhanced share capital by the closing of the public offer, it will also have the option of subscribing to the newly issued shares of the company. According to reports, Tech Mahindra will pay a total of Rs 2889 crore for a 51% stake in Satyam, which values the company at Rs 5,666 crore on expanded equity capital.
Tech Mahindra will have to deposit initial subscription amount and the requisite escrow amounts for the public offer by April 21. If Tech Mahindra fails to deposit these amounts by April 21, the next highest bidder will be considered the highest bidder.
Tech Mahindra shares went up 19.3 percent at Rs 381.70 rupees, after touching as high as Rs 400.
According to Infosys Technologies CEO, S Gopalakrishnan “It is commendable that the government-appointed board at Satyam has been able to bring a closure to the uncertainty surrounding Satyam’s future. The government has addressed the issue quickly and responsibly. Overall, it is a good thing that the issue is put behind us.”
Board members Deepak Parekh and S B Mainak did not participate in the discussions for selecting the highest bidder as Parekh sits on the board of Mahindra &Mahindra, the promoter of Tech Mahindra while Mainak is the Executive Director of LIC, which holds a significant stake in Larsen and Toubro (L&T), which had also bid for Satyam.
Goldman Sachs and Avendus Capital advised Satyam on the acquisition.
In a press conference held today, the Satyam board said that though the winning bidder will have the option of bringing in another investor into the company, it will not be allowed to strip down the company. It also said that it would be up to Tech Mahindra to keep the brand ‘Satyam’ or to change it.
It would also be Tech Mahindra’s decision to run Satyam as a stand alone company or to merge it with itself.
Tech Mahindra’s win comes as a surprise as L&T, which holds a 12% stake in Satyam, had been reported to be the strongest contender for the acquisition. L&T has said that it will hold on to its 12% stake in Satyam. Also L&T cannot sell its shares in the open market for the next six months as it has a stand still agreement with the Satyam board.
While L&T had bid at Rs 45.9 per share, WL Ross had bid at Rs 20 per share.
Earlier post: The final lap for Satyam has begun and initial reports on the bidding finale today suggest a valuation pegged at around Rs 6,000 crore ($1.2 billion), which is a far cry from the market cap of $9 billion that it commanded just a year ago. The board of Satyam has reportedly received bids in the range of Rs 55-65/share and the arbitrage opportunity has already seen punters taking Satyam scrip up 14% to Rs 54 in early morning trade.
Those who are said to be in the race include Cognizant, Tech Mahindra and L&T. The bidders are looking to buy 31% stake through fresh issue of shares which would be followed by an open offer. Given this scenario, the highest bidder may have to shell out somewhere around Rs 3,300 crore ($650 million) including around Rs 2,000 crore for the 31% stake and another Rs 1,300 crore for the open offer (assuming it manages to garner all the shares it has offered to purchase).
It has been disclosed last weekend that the firm generated revenues of around Rs 2,000 crore in January-March 2009, which gives an annualised revenues of around Rs 8,000 crore ($1.6 billion). While former Satyam chief B Ramalinga Raju had said the firm has real profit margin of just 3% which would give annual net profit of just Rs 240 crore or thereabout, analysts have never believed this could be true as other top IT firms have margins of 20% plus.
Even assuming Satyam is a very badly managed firm at a revenue run rate of $1.6 billion it should have profits of around Rs 1,000 crore ($200 million) on the conservative side. On the expanded capital base this would give it a price earning ratio of around 6 (4 on the current equity base) as against top firms like Infosys which trades at P/E of around 14.
The financial bids are yet to be opened by the government appointed board of the firm and the real picture of bids and valuations would become clear later in the day.