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Satyam attracts suitors, but appearances may be deceptive

he alluring bait that has been cast to find potential suitors for the troubled Satyam Computer Services is extremely tempting
to rival software firms and financial investors, but none of them is seen in any great hurry to bite.

The attractions of India’s fourth-largest software exporter are many: marquee clients such as General Electric and Nestle, over 50,000 staff with valuable technical skills and a market value of just Rs 11,200 crore, a little over 1.25 times its sales of Rs 8,130 crore for the 12 months ended March 2008.

This has meant that the market is abuzz with talk of potential suitors — the list includes multinational firms, private equity (PE) funds, Indian firms such as Tech Mahindra and HCL Technologies, and even an alliance of companies.

“All scenarios are possible as Satyam is an attractive asset. The point is that Satyam may not be able to continue as it is, given the governance issues. The buyer could be an India- centric company, PE players or multinationals,” said Avinash Vashistha, CEO of Tholons, a Bangalore based IT advisory firm. But, for now, discretion is the better part of valour, as Satyam grapples with issues which have dealt a blow to its credibility following a failed bid to buy two companies run by the sons of its founder B Ramalinga Raju for $1.6 billion.

“Any suitor will have to look at it in entirety – the valuation, the cash on the books, the promoters’ exit and the litigation involving Upaid,” said SBICAP Securities research head Anil Advani.

Four of the company’s six independent directors have resigned after the ill-fated acquisition attempt on December 16, the shareholding of the promoters has fallen after some of the shares they pledged to lenders were sold, the cash in the company’s books is in doubt and Satyam is battling a US lawsuit by a former customer alleging fraud and forgery and claiming damages of over $1 billion.

Investment banking sources say Satyam’s merger with a large IT company such as HCL Technologies or Cognizant looks more feasible than an outright acquisition by a multinational IT firm.

A merger is seen as making more sense for companies such like HCL, Cognizant, or even Tech Mahindra, as any of these can use the opportunity to enter the top league of Indian IT services exporters which now has TCS, Infosys Technologies and Wipro leading its ranks.

“It will make the entity (HCL-Satyam) the strongest SAP (business software) player in India,’’ said Apurva Shah, IT analyst at broking house Prabhudas Leeladhar. A Satyam-HCL combine will have strong expertise in business software space and could challenge the top three players whose strength is the development and maintenance of applications, said Nikhil Rajpal, principal at outsourcing advisory Everest Group. Satyam gets about 45% of its revenues from enterprise software while for HCL, which recently acquired Axon, a UK-based specialist in SAP business software, it is 30%.

A HCL Technologies representative reacted to the prospect of a deal with Satyam by saying “We don’t comment on market speculation.”

Another company which could see a Satyam buy as great for its business is Tech Mahindra. A combination with Satyam could help the telecom software company – heavily dependent on Britain’s BT Group Plc now – spread its risk and leapfrog into the big league. “Tech Mahindra is a focused telecom player that will need to diversify into other domains sooner or later. As a strong generic offshore player, any deal with Satyam would make strategic sense for Tech Mahindra,” said Mr Shah of Prabhudas Leeladhar.

Source: ET


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