Thursday, February 5, 2009

Is the Worst Over for Satyam?

Is the Worst Over for Satyam?

In less than a month, Satyam Computer Services (SAY), the disgraced Hyderabad outsourcing company, has come almost full circle. On Jan. 6, Satyam was being entertained as a desirable acquisition target by suitors from HCL Technologies to Wipro (WIT) to IBM (IBM), Hewlett-Packard (HPQ), L&T Infotech, and Tech Mahindra. Even private equity firms like KKR and TPG were interested in Satyam. Then on Jan. 7, Ramalinga Raju, Satyam's chairman, confessed to having orchestrated a massive fraud at India's fourth-largest IT services company. Suddenly, Satyam became an untouchable, deserted by potential buyers who worried about the level of toxicity in the company.

Now suitors have begun cautiously to circle the company once again. Some of the previous wooers—L&T Infotech and Tech Mahindra, for instance—are back in the fray, although, with the stock price down 68% since Raju's confession on Jan. 7, the price tag to take over Satyam is now a lot lower. Others reported to be interested in scooping up what's left of Raju's company include new potential bidders such as Hinduja Global Solutions, part of the British-based Hinduja Group. A spokesperson for Hinduja would not comment. On Feb. 1, Spice Group, a telecom operator run by Indian industrialist B.K. Modi, offered to buy 51% of Satyam for $400 million. "That's a realistic bid," says Viju George, IT analyst at Mumbai's Edelweiss Broking.

Calming the Markets

What has changed for Satyam? Mostly this: The government-appointed board comprising Deepak Parekh, a respected businessman and chairman of mortgage lender HDFC, and Kiran Karnik, the former president of powerful software association Nasscom, has calmed the markets, Satyam's customers, and employees. And it has restored some confidence in India's outsourcing business. Analysts say a Jan. 15 announcement of quarterly results made people view Satyam as a going concern, a real business with employees and some value, even if it has $1 billion in debt and, following the admission by Raju, a balance sheet that investors can no longer quite trust. "Satyam has assets, clients, and business, but we don't know how profitable it is," says Harit Shah, IT analyst at Mumbai's Angel Broking.

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