Satyam cleared for controlling investor

(By Anthony Miller – Sunday, 8th March 2009 1:50pm). Shares in beleaguered Satyam soared 20% on Indian stock exchanges on Friday as the Securities & Exchange Board (SEBI) approved a ‘global competitive bidding process’ which could lead to an investor acquiring 51% of the company. Bidders need to register their interest by Thursday and submit bids by Friday week. Satyam’s ADR shares listed in New York rose nearly 14%. The ADR’s – representing 19% of Satyam’s stock – are owned by Citibank. UK-based Aberdeen Asset Managers hold over 5% of the local stock.

The rumour mill is running overtime with names of potential investors, including ‘foreigners’ such as IBM, Fujitsu and Oracle, and Indian firms such as engineering firm Larsen & Toubro (L&T), Tech Mahindra, Spice Group and Hinduja Global Solutions. Frankly a more eclectic list of likely suspects would be hard to imagine.

I would rule out Oracle pretty much straight away as I can see no sensible rationale for them wanting to diversify into ‘real’ IT services. Infrastructure services player Fujitsu has made its ambitions to boost its application services capability well known; it tried to buy French IT services firm GFI Informatique back in May ’07 for €420m but was rebuffed. But I think Satyam – now worth around $500m – an unlikely target as it wouldn’t really further Fujitsu’s ambitions in Continental Europe. IBM, of course, could buy anything it wanted and should always be considered in the frame.

But I rather like L&T – whose IT services arm is now headed by ex-Wipro top exec, Sudip Bannerjee (see Ex-Wipro exec resurfaces at L&T Infotech) as Satyam would really put them on the map. L&T trebled its stake in Satyam in January and already owns 12% of the stock. Tech Mahindra – also part of an Indian conglomerate (Mahindra & Mahindra) would undoubtedly be an interested party in order to broaden beyond the 60% of its business it gets from 31% stakeholder, BT – but that very association may prove too complicating. Colourful Hinduja would be a real wild card – that’s Hinduja as in ‘brothers’ as in Peter (now Lord) Mandelson’s nemesis. I must admit to knowing little about Spice Group, but media reports suggest its chairman, BK Modi, is keen to buy into Satyam. Spice Group has diversified operations including mobile handset manufacturing, mobile software development, back-office operations, entertainment and retail.

But, who knows, the ‘winner’ could be none of these. Whoever it may turn out to be, I do hope they have their due diligence machine also running overtime as it is not at all clear whether there are any other surprises lurking around for an unsuspecting investor.