The 13th of April 2009 will present itself as a most memorable date in the Indian IT Sector to the World at large. This date will be a witness of the sale of the fraud hit 4th largest Indian IT major - Satyam Computer services to the Mahindras, who faced a competition from the much talked about L&T, which already has 12% stake in the fraud hit IT major.
TechMahindra (TechM) emerged as the highest bidder with an offer price of Rs 58 per share. TechMa's price outbid other suitors, engineering giant Larsen & Toubro’s bid of Rs.45.90/share and private equity player Wilbur Ross' Rs 20/share, by a comfortable margin, Mr Kiran Karnik, chairman of the Govt. constituted Satyam board told reporters.
At Rs 58 per share, TechM will acquire a controlling stake of 51% in Satyam for Rs 2,889 crore, pegging the total value of the company at Rs 5,665 crore. In the first stage, Satyam will issue 30.27 crore shares to TechM, representing 31% of the company's share capital, which will infuse Rs 1,756 crore into the company. In the second stage, TechM will have to mandatorily make an open offer to Satyam's existing shareholders for another 20%. However, L&T, which holds a 12% stake in Satyam, will not participate in the open offer for shareholders as it has a lock-in period of six months.
The acquisition catapults TechM into the fourth position in the pecking order of IT firms, after HCL Technologies.
TechM is a strong player in telecom (75% of revenues), where as Satyam caters to financial services
, manufacturing and healthcare, among others.It will require a fair amount of work to bring Satyam back to its past glory. The acquisition will help the company, an arm of the Mahindra & Mahindra Group, to diversify into new areas by exploring the synergies present with Satyam and compete aggressively with bigger rivals such as TCS, IBM, Infosys and Wipro.
Satyam serves a large clientele of over 500 clients -some of them as large as GE, Cisco, Citi
and General Motors -Mahindra said: ``I will personally reach out to John Chambers (chairman of Cisco), Vikram Pandit of Citi and Fritz Henderson (GM CEO) to restore confidence in Satyam and us.''
The Stock of both the companies experienced a high volatility in the intraday trade at both the exchanges. TechM rouse to 25% quoting at Rs.400 plus a share as the high of the day and shed off its intraday gains by the end of the trading session. On the other hand, Satyam rouse above 16% to settle down at Rs. 49 a share a mere 3% up from the previous close at the BSE.
Inevitably, questions are being asked about the winning bid. Have the Mahindras over-valued Satyam…? As Cognizant, a joint bidder with Wilbur Ross, decided to back off at the last minute. Defending his bid price, TechM chairman Anand Mahindra said: ``When you are running in a race, you don't look behind who's chasing you. We believe our bid is rightly priced.'' It is estimated that Satyam's liabilities could be as high as $1 billion. TechM director Bharat Doshi said that the bid price
was determined by the company after taking into account Satyam's liabilities.
Tech Mahindra’s acquisition of Satyam may have come as a relief to the market, but analysts see a tumultuous journey ahead for the former. As regards the upcoming open offer, analysts aren’t sure of the kind of response the offer would evoke. They also appear to be quite cautious about the impact of the acquisition on the prospects of Satyam, given the magnitude of the crisis and a lack of clarity on strategy the winner would adopt post-acquisition.
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