The four-month saga surrounding beleaguered Indian IT services firm Satyam is coming to an end. The company has announced that rival offshore services firm Tech Mahindra is the winning bidder in a hastily organised sale overseen by the Indian government and managed by a board of directors that had been drafted in specially.
Tech Mahindra is paying $351 million for a 31 per cent share of Satyam, and will follow this up with an open offer for a further 20 per cent of the shares at the same price. This values Satyam at US$1.1 billion, just over half of its total reported revenues for the year ended March 2008. In any other circumstances this would be a bargain-basement price. However, clear details about Satyams true financial position have yet to emerge four months on from the admission of fraud by its former chairman B. Ramalinga Raju. Therefore we dont expect Tech Mahindra, or any of its competing bidders, would have had a clear view of the profitability and operating metrics of Satyam before placing a bid.
While Satyam maintains that the fraud is not as widely spread as first thought, audited accounts have yet to emerge, making the value attributed to this acquisition a real shot in the dark. Tech Mahindra beat private equity firm W.L. Ross & Co, and Larsen & Toubro, an Indian engineering and construction conglomerate, in the final round of bidding for Satyam, with news reports putting these companies bids at Rs20 and Rs45.90 per share respectively. This is considerably lower than Tech Mahindras winning Rs58 per share bid, raising further concerns that Tech Mahindra may have overpaid.
Its not altogether surprising if youve never heard of Tech Mahindra outside of the UK and India. The company is a joint venture between British Telecom and Indian conglomerate Mahindra & Mahindra, and it still generates around 60 per cent of its revenues from services to BT. Given its heritage as a supplier to BT, most of its expertise is in the telecoms sector, where it focuses on application management, maintenance and support services. The company generated around $750 million in revenues last year and, depending on the amount that Satyam will add (Tech Mahindra currently anticipates that could be around $1.3 billion in FY09/10), it could pass the $2 billion mark in 2009/10.
This historical focus on maintenance and management contrasts with Satyam, which focuses primarily on application development, and enterprise software consulting and integration in the financial services and manufacturing sectors. As such, the two businesses seem pretty suited, with a low potential for overlapping client-service contracts.
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