The Satyam – Maytas flip flop

Wonder what’s up with Ramalinga Raju? Wonder what was running through his mind when he decided to buy into the infrastructure and real estate firm, Maytas run by his sons.  Satyam is a unique company in a way that the promoter group holds less than 10% stake and private investors hold a majority stake in the company (most of them FIIs).  So, it was even more baffling to see the decision taken by the promoters to shift the company’s focus into an altogether different field from its current IT Services.

satyam-maytas

Maybe Raju rode his luck or was absolutely sure that his decision wouldnt be questioned by the shareholders. Its a victory for the minority shareholders. Under severe pressure by shareholders across the board, the decision to buy into Maytas had to be withdrawn.  It takes years to build up trust and a certain image in the market and with one silly move, Ramalinga Raju has poured water on all the hardwork.  A 30% hammering of the stock (on NSE) in one day will have shown Raju who the boss is and he better not take any such decisions in haste the next time.

Satyam announced the acquisition of the privately held Maytas Properties for $1.3 billion and increasing its stake in Maytas Infra to 51 per cent for $300 million. However, the company had to eat humble pie and withdrew its proposal due to strong opposition from shareholders.

The hasty retreat has dealt a severe blow to Satyam’s credibility and made it the laughing stock of the investor fraternity. Analysts said the deal was unethical as it aimed to bail out firms owned by promoter and chairman Ramalinga Raju’s sons. According to them, the company grossly overvalued the real estate and infrastructure firms, especially at a time when the two sectors were not in a good shape.

Full article here

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  • Quirky Indian

    The company actually got a corporate governance award in September 2008!

    Cheers,

    Quirky Indian

  • Srinivas

    It was a smart business move and there seems to be no voilation of any rules either in companies act or other

  • Milind

    It was done to derisk the core business. It was conceived in the best interests of its shareholders. No doubt about that. They should have taken some more time.

  • Liju Philip

    @ IHM, market is red and so is my portfolio too. But its a great time to invest now.

    @Srinivas, Milind, a management that holds 8% stake in the company makes such a radical decision about the company’s future without asking or even discussing with the rest 92% shareholders? Its a shame if Satyam is let off so easily. I hope Ramalinga Raju and his family is kicked from the board for a better future of the company.

  • Srinivas

    Dear Liju

    The same management got this company from no where to 2 billion + and was awarded for its corporate goveranance

    any management across all global MNC are empowered by the shareholders to take decisions

  • Mini Singh

    I agree Srinivas. It is not about the intent of Satyam management but about the judgement. They might have gone wrong in assessing the opportunity but not with a tainted intent. If not anything,. the benefit of doubt can go in favour of Satyam

  • Liju Philip

    @Mini & Srinivas,

    Why the decision rankles is because.

    1. He invested the money in his son’s company.
    2. If he really wanted to divest and that too into real estate and infra company, then Unitech was a better company. For less than $1.6 billion, he could have picked up Unitech. Unitech has a land bank many times bigger than Maytas.
    3. He says a big four counsulting firm advised. If his intentions are being called into question as it should be, why isnt he putting forth the consulting firm’s report and disclosing the firm’s name?
    4. Why infrastructure of all places? Lots of good IT companies are available at cheaper prices now and he could have gone in for that.
    5. Agree the management has the mandate to do any deal, but that is a management that has majority shares with it. Not like Satyam where a person holding 8% stake in the company ignores the 92% shareholders and takes decisions.
    6. Why the hurry to buy overnight? Why not call for a shareholder’s meet and discuss the issue?
    7. Its a known fact that most of the land that Maytas holds is agricultural land and it has no proper value in the market. So how and where did he come out with the $1.6 billion valuation? Already experts have torn apart Raju’s valuations.

    All these and many more issues point to the fact that Ramalinga Raju and his management is hiding things. There are a lot of hidden skeletons in the Satyam closet and hence the immediate rollback of the deal. Anyway, the govt is investigating the issue and i hope the truth will be in front of the investing public sooner or later.

    No one is doubting the current management’s hardwork in bringing the company to where it is today. Its precisely why the anger is so much cos with one silly decision Ramalinga Raju and his management has screwed up the company’s reputation.

  • Srinivas

    hmmm but as one goes through the fine print it seems that no law of the land has been voilated and also the board consist of some of the best names, also this was the same set of management which made this company so sucessful so if they had bad itentions why wait till now and why would international bodies recoginize them for corporate governance, i think there is more to this than what is being splashed in press / media which seems to be only one side of the story

  • Lazybug

    When I first saw it on TV, the decision to buy a real estate firm baffled me. The only possible explanation seems to be the one given by analysts i.e. bailing out his sons’ company, which is quite pathetic – even more so if you have not consulted your shareholders. The board might be a bunch great managers, but this is plain stupidity. On another note, I am totally in for diversification, look at Wipro and Tata. But the right channels have to be used unlike this haphazard move.

    P.S Why does this remind me of late Mr Ambani?

  • Rajesh

    I worked with Satyam for about 10 years till i had to move out of India for personal reasons. This is One of The Best companies in terms of governance and Mr. Raju is a true example of a business man who can always keep the delight of all stakeholders in mind in each of his actions. The media is blowing out of proportion the Maytas acquisition announcement jus ‘cos of the fact that the company succeeded in maintaining secrecy of the deal. The media could not digest the fact that they have been beaten this time around! The leading questions that media people and more suprisingly even the most reputed business channels were asking analysts were exposing how biased they can be. It is time we move ahead and look at positives moreso ‘cos the company has in view of investor’ views retracted its acquisition plan. I wish the media, at least the business media act in a more responsible manner.

  • Liju Philip

    @Akhil, true it was the worst deal in the history of Indian business. Am not surprised to see the way the management bulldozed the deal thru so that Raju’s sons could get money in this money tightening market as they signed the foolish hyderabad metro deal where they will have to give back the govt 30k crores rupees during the deal.

    Meanwhile looks like the fire fighting is going on. Do you see all the one name comments on this post espousing the greatness (sic) of the company and the deal…hahaha. They dont realise that they are all posting with different names from the same ip address. The media has ripped the deal and the Satyam management on the TV, net, papers etc and you dont even see the management come in the open and defend the deal.

    That proves what was feared. That the deal was done with malicious intent by the Satyam management. Period.

  • Venkatesh

    every deal will have analysts differing on the valuations, the amount is high and low etc. But I feel diversifying and buying one of his own company is also not a bad deal at all…
    More important is they accepted the concerns of shareholders, in true corporate spirit…..

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  • Mini

    Liju,
    I am sharing some facts, i repeat facts only to share with you why Satyam still is a fundamentally sound company:

    1. Satyam has Presence across the Globe (20 Industries ,65 Countries) more diverse than Wipro & INFY. This does happen by accident. This spread helps Satyam in tough economic conditions. Did you know outside India in Asia Pac Satyam revenue are more than any of the Top 3 Indian IT services firm. De-risked Geographic revenue distribution 21% Europe, 17% Asia Pac, 62% America’s. Best present to leverage emerging markets.

    2. Satyam has Mature Practices DWBI & ERP. HCL had to spend over 0.5 Bn to get the ERP skills which we already have. they just save $ 0.5 Bn

    3. Revenues & Net Income have Grown Five-fold over last 5 years. This by sheer hard work by 50,000 people. Not by accident

    4. FY08 was the 5th successive year of >35% Growth in Net Income. Show’s how they have got profits year after year.

    5. 32% revenue coming from New & Emerging vertical : Satyam has diversified and expanded is industry depth.

    6. Deepest Fortune 500 client penetration 185, Total 690 clients. Clients continue to support Satyam in spite of the issues that have surfaced in last 10 days. Company has as many clients as Infosys and strong fundamentals then why worry?

    7. Company has the largest cash reserve to revenue ratio in IT industry as a result of company employees under management direction … why question it now?

    8. Client delight index is a 4.5 out of 5, client retention is 98% – clients are an asset – do not loose sight of the fact and do not slight Satyam and management for just one aberration – this is an organization and not just a script on the BSE/ NYSE

  • Rimas

    I agree company is build by hard blood n sweat of 50,000 people …..they have great client base.

    They may have a bump in short time ….they will bounce back

  • Liju Philip

    @Mini, no one’s claiming anything about Satyam’s clients and operational capabilities. Its the management that is pathetic and systematically throws proper corporate governance norms to the winds. More and more skeletons are coming out of the Satyam cupboard daily.

    I wish Ramalinga Raju is kicked out sooner than later and someone will mount a hostile takeover of the company.

    Read more about Satyam’s malpractices in this post and the links given in the comments.

    http://philip9876.wordpress.com/2008/12/22/satyams-pack-of-lies-crumble/#comments

  • PK

    “I BELIEVE IN Satyam’s Now more than ever”

    Following facts cements by trust and believes in Satyam

    1. The recent news on print media and channels does not affect our commitment to CLIENT, We have a solid , robust and proven framework in place to ensure smooth functioning of routine activity.
    2. Intent of investment was right and in best interest of business
    3. We have Presence across the Globe (20 Industries ,65 Countries) more diverse than Wipro & INFY. This does happen by accident but thru a thoughtful effort, strategy and direction provided by able leadership. This spread helps Satyam in tough economic conditions.Our Revenue outside India in Asia Pac are more than any of the Top 3 Indian IT services firm. De-risked Geographic revenue distribution 21% Europe, 17% Asia Pac, 62% America’s. Best present to leverage emerging markets.

  • Bhanu

    Satyam’s greatest asset and strength are a) Ability to take risk b) Empowering the associates/leaders c) Flexibility d)Strong Sensitiveness to Associates, Investors and Society. These are the basic fundamentals/ethos that have taken the company to such greater heights over the last 20+ years. A single decision taken at the highest level cannot or will not make the company bad. Success always come with Risk and Innovation and Satyam is the leader in this front. I strongly believe that the decision that has been taken at the highest level would have been very beneficial to the Investors and associates in the long run

    Be it as the first company in India to push for Outsourcing by setting up a dedicated link or the company which has started the ‘LIFE SAVING’ 108 service in India or the company which have started the ‘RURAL TRANSFORMATION’ by levraging IT or the company which have stated the ‘HMRI’ in A.P to provide the people below the poverty line access to medical facilties, Satyam is the leader of Innovation whether the so called yellow journalists / frenzy media like it or not. Till date Satyam has done more good to the investors and the COMMON MAN on the street than any of the other Corporates in India.

    Every company has its own strengths and Weakness and Satyam always plays to its core strengths and this is what the Customers like about Satyam. It doesn’t matter how many big deals we won but the fact is Revenues, Net Income and Associates have Grown Five-fold over last 5 years. Total 690 clients of which 35% of the Fortune 500 client are with Satyam. We have achieved this through dedication, hard work and strong leadership at all levels against strong competition

    Satyam’s attrition rates are the lowest when compared with competition and the Company has the largest cash reserve to revenue ratio in IT industry to take care of the associates in tough economic times. This proves that the CORE associates are always with SATYAM and it is only the ‘FLOATING’ associates who are not able to take initiatives has an issue with Satyam

    Today’s SUCCESS MANTRA is ‘THINK OUT OF THE BOX’ and not CONVENTIONAL Way. Of late we all have seen this on the Cricket field where success is bestowed on teams/players (MSD, KP, Shewag, Yuvi) who had this approach to the game. For sure we would bounce back from this MEDIA LASH with VIGOUR and prove them wrong about SATYAM.

    Every day I get up and drive to my Satyam Office, I feel proud to be part of a team/group which is responsible of saving THOUSANDS OF LIVES/day ON THE STREET AT ZERO COST. Other than the Medical Community & Satyam Community which else community or corporate can have this opportunity to make a difference in the lives of the people ???

  • Zainab

    Satyam is a Gr8 company to work for. The media should be responsible enough to percolate the right information to the general public.

    I Support my company in all respects.