(By Anthony Miller – Monday, 13th April 2009 5:15pm). Larsen & Toubro and Cognizant ended up among the ‘also-rans’ today as the Satyam Board announced that Tech Mahindra was first past the post in the Satyam Stakes (see Satyam Stakes nears final furlong), with no other mount within 10% of the distance. Tech Mahindra’s ‘prize’ will cost them some $350m up front with up to another $225m to gain 51% control of Satyam.The deal sent investors into a flurry. Satyam’s local stock rose 3% to Rs49 compared to the Rs58 per share Tech Mahindra bid. However, Satyam’s NYSE-listed ADR, which used to account for 19% of Satyam’s issued capital, is down 18% to $2.18 at time of writing, which is about Rs55 at today’s (Monday) exchange rate, a 12% premium (there are two Re shares per ADS). There used to be a time when the ADR’s of India-based SIs like Satyam, Infosys and Wipro typically commanded a healthy 20%+ premium to the domestic market; today, even Infosys’ ADR premium is barely 4%. Sometimes ADS shares trade at a discount!
Tech Mahindra's bid values Satyam at about $1.1bn compared to Infosys’ $16.8bn, Wipro at $12.7bn, Cognizant at $6.8bn and Patni at $424m, all on US exchanges. Satyam’s shares touched over Rs533/$29 last June. Tech Mahindra’s shares (only listed in India) closed up 12%. Oh - and don't forget - Tech Mahindra is 31% owned by BT, which generates about 60% of it revenues. Press reports say BT was satisfied that the potential benefits of the deal outweigh the risks - but how much due diligence could they (Tech Mahindra and BT) have done in just a couple of weeks or so, especially considering the circumstances?
Did Tech Mahindra overpay? Who knows? According to press reports, Tech Mahindra CEO Vineet Nayyar put Satyam’s revenues around $1.5bn though he expected this to fall to $1.3bn next quarter. The last financial report that Satyam issued was for the quarter to 30th Sep. ’08, which showed trailing12 months revenues at almost $2.5bn. That's rather a large discrepancy, don't you think? We'll have to wait till Satyam publishes its results - audited by KPMG and Deloitte - to find out.
Did Tech Mahindra overpay? Who knows? According to press reports, Tech Mahindra CEO Vineet Nayyar put Satyam’s revenues around $1.5bn though he expected this to fall to $1.3bn next quarter. The last financial report that Satyam issued was for the quarter to 30th Sep. ’08, which showed trailing12 months revenues at almost $2.5bn. That's rather a large discrepancy, don't you think? We'll have to wait till Satyam publishes its results - audited by KPMG and Deloitte - to find out.
So, Tech Mahindra doubles its size and more - often a recipe for 'acquisition indigestion' - and the UK IT services marketplace gets a whole lot more interesting! TechMarketView subscription service clients will see our full analysis in OffshoreViews later this week.
... but what next for Larsen & Toubro?
L&T Infotech CEO Sudip Banerjee seemed in stoic form when we exchanged emails after the news on Satyam broke earlier today. Disappointed, of course, but certainly not desolate. So what does L&T do now? Although Banerjee had previously told me that they would look for other acquisitions if they don’t get Satyam (see L and T: If we don’t get Satyam we’ll buy someone else! and the accompanying OffshoreViews note), there’s nothing really out there of that scale. So here’s a different approach. How about Tech Mahindra buys L&T Infotech (revenues around $425m) as well, and then installs Banerjee to run the expanded non-BT business? Just a thought!
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