Tech Mahindra Wins Satyam Bidding

123jump.com Staff
13 Apr, 2009
New York City

Tech Mahindra won the bidding process for fourth largest software services exporter Satyam. The four months saga of Satyam started after its chairman and founded admitted of inflating cash balance to $1 billion and financial statements for years. Tech Mahindra offered 58 rupees a share.

[R]1:30PM New York, 11:00PM in Mumbai - Tech Mahindra win of Satyam comes with a steep premium and high debt leverage in the company.[/R]

Satyam Computer Services Ltd ((SAY)) attracted three bids with Tech Mahindra Ltd offered the highest bid.

Satyam, the fourth largest software services exporters from India attracted bid of 58 rupees per share from Tech Mahindra, 45.90 a share from Larsen & Toubro and 20 rupees a share from a private equity fund controlled by the U.S. based vulture investor Wilbur Ross.

The merger evaluation board appointed by the Indian government recommended Tech Mahindra bid to the board of the company and is likely to be approved in less than a week. The four month saga of Satyam fraud started when its chairman admitted perpetrating fraud to inflate cash balances and transfer funds to companies controlled by family members.

Tech Mahindra will acquire 31% of the company for 1,757 crore rupees and will acquire additional 20% of the stake in the open market as required by the Indian merger laws.

The deal will help Tech Mahindra to broaden its client base from Europe to a larger client foot print in the U.S. Satyam currently gets 20% of its revenue from manufacturing companies in the U.S. and also has a presence in the automotive sector. Tech Mahindra is focused on providing telecom and software services to telecom and networking companies.

The newly merged companies will have Cisco as a client through Satyam and will have more balanced revenues in Europe and the U.S. Currently Tech Mahindra receives 65 its revenues from UK and its parent BT is the largest customer.

The acquisition has its benefits and will provide scale and diversification to the relatively small player Tech Mahindra with annual revenue of less than $950 million compared to revenues of $4.2 billion for InfoSys and $5.7 billion for TCS. Satyam reported $2.2 billion in revenue in fiscal 2008 ending in March 2008.

Tech Mahindra is owned 31% by BT Group, the largest land line telecom provider in the UK and is likely to raise 600 crore rupees of $120 million in India through a corporate bond offering.

The company may have to pay steep interest rate of more than 10% to complete the offering. According to Economic Times Kotak Mahindra Bank is appointed as the sole manager for the offering.

Satyam at peak traded at 524.90 rupees a share last year and the stock collapsed after its chairman Ramalinga Raju resigned and said that he had inflated cash balance and employee count at the company.

The fraud hit the company employees and investors with a surprise that has raised issues of the reliability of the auditors in India and corporate governance. Ramalinga Raju and his brother co-founder of the company B. Rama Raju, the former managing director of the company, former chief financial officer Srinivas Vadlamani and three other officers are arrested and charged with financial forgery.

PriceWaterhouseCoopers had certified financial statements for their accuracy. Not a single auditor of the company is still held by the authorities for questioning in their role in the fraud that inflated company cash balance and transfer of funds to group related company involved in infrastructure development.

Satyam’s ADR or American Depositary Receipts in New York traded as high as $29.84 and as low as 78 cents in the last fifty two weeks of trading. At mid-day trading, Satyam declined 13.2% to $2.29.

In Mumbai trading, Satyam stock on the BSE traded as high as 54.90 but closed up 3.6% to 48.85. In the last seven trading days the stock has gained 27% as the bidding process continued.