Tech Mahindra has emerged the highest bidder to acquire Satyam Computer and will pay Rs 1,756 crore to buy a 31 per cent stake in the company. The telecom software major has paid Rs 58 for a 10-rupee share for subscribing to 30.27 crore shares of the fraud-hit IT company, representing a 31 per cent stake of the total share capital.
Pursuant to the share subscription agreement, Tech Mahindra has agreed to subscribe to and acquire 30.27 crore shares at Rs 58 per share thereby agreeing to infuse Rs 1,756 crore ($351 million).
Mumbai-based Tech Mahindra, where Mahindra and Mahindra is a promoter with a majority stake and BT has 30 per cent, is a key player in telecom software.
The Development
It is a subsidiary Venturebay Consultants had emerged as the highest bidder to acquire a controlling stake in Satyam subject to the approval of the Company Law Board (CLB). After getting CLB approval, Satyam Computer will ask Tech Mahindra to make an open offer for another 20 per cent in the company, which if fully subscribed in the first round, will take its stake to 51 per cent. If not subscribed fully by the existing shareholders, there could be a second round of open offer.
Tech Mahindra is required to deposit the initial subscription amount and the requisite escrow amounts for the public offer on or before April 21. If Tech Mahindra desires to take control of the affairs of the company simultaneously with the preferential allotment, it will be required to deposit in escrow the total funds necessary to consummate the public offer. The company was administered by a new board appointed pursuant to the orders of the CLB dated January 9, 2009. The process to select a strategic investor has reached this significant stage within three months of the board’s first meeting.
Two-Horse Race
It was basically a two-horse race for the acquisition of scam-tainted Satyam Computer with the Rs 3,766-crore Tech Mahindra becoming the winning bidder at Rs 58 per share. The second highest bidder, L&T, seen as the front-runner from the start, was way behind with a bid of Rs 45.90 per share.
The MNC Cognizant bid Rs 20 per share, which indicated it was not serious. Tech Mahindra had taken all factors into account when we came to a decision of Rs 58 per share. It had factored in everything, from sales to liabilities, to arrive at the bid price.
Mr Mahindra waved away concerns about how it was going to finance the purchase of 51 per cent of Satyam at Rs 2,889 crores. Mr Doshi said Tech Mahindra had surplus cash of Rs 700 crores and the debt potential would be shared by a special purpose vehicle and Tech Mahindra, which is a joint venture between M&M and British Telecom. Tech Mahindra gave no figures of the exact liabilities that it will be taking on, but because of client attrition the company had lost business worth $1.5 billion and is expected to come down to $1.3 billion in the first quarter.
Ever since Satyam’s disgraced promoter, Ramalinga Raju, confessed to a fraud of nearly Rs 8,000 crores, the future of Satyam, which was the third largest IT company, had been in suspense.
The Government set up a board headed by Mr Kiran Karnik and high-profile directors like Deepak Parekh to oversee the sale of Satyam. After losing some time, the board acted swiftly to save Satyam. There were obviously not too many takers because the new board could not give figures even of the approximate liabilities, which include the case filed by Upaid of Texas and several other class action suits. There was a lack of transparency that was attributed to confidentiality.
Emerged Winner
Once quoted at a price of Rs 542 per share, Satyam Computer has gone under the hammer for Rs 58 a share -- about one-tenth of the level the IT company enjoyed about a year-ago, when no one had any inkling about the scam being perpetuated there.
Tech Mahindra, which emerged as a winner in the race to acquire fraud-hit Satyam Computer, has bid the highest price of Rs 58 per share and would have to shell out an aggregate of about Rs 2,889 crore for 51 per cent stake in the company. Based on the bid price, market capitalisation of the expanded equity base of Satyam would be around Rs 5,600 crore.
Tech Mahindra emerged as the bidder with the right combination of appetite — for scale and risk — and pedigree. It walked away with Satyam for a shade under Rs 3,000 crore. Satyam’s revenue in January-March, the deepest hour of its crisis, was Rs 2,000 crore.
Months before the scam at Satyam had come to light with confessions of its founder and former chairman B Ramalinga Raju, the Satyam scrip had hit a 52-week high of Rs 542 in May 2008. The IT firm's market capitalisation had been over Rs 36,600 crore at that time.
After the confession, the scrip had plunged to a low of Rs 6.30 on the National Stock Exchange on January 9, 2009. The market valuation of the firm had fallen to a low of just Rs 404.33 crore based on the Rs 6.30 share price. Besides, the current valuation of Satyam at the sale price of around Rs 5,600 crore is just about one-sixth of its 2008’s market capitalisation.
Tech Mahindra also contains the knock-on effects in the rest of the information technology industry. The regulatory response to the biggest con in India’s corporate history was quick and clean — the Board appointed by the Government comprised business leaders universally regarded for their integrity and acumen, and the process of sale they drew up was by and far the most transparent that could be devised under the circumstances.
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