Non-tech firms can now bid for Satyam

27 Feb 2009 ET Bureau

HYDERABAD: The government-appointed board of Satyam Computer Services on Thursday decided to allow non-IT firms to join the race to buy the software firm. PE firms with a partner will also qualify as bidders, said a person privy to the development.

The move comes as something of a surprise as the Satyam board had earlier contemplated making prior experience in the IT sector as a qualification criterion, as reported in this paper. But it was reckoned that the norm would have been restrictive, given that only a clutch of IT firms have shown interest in acquiring Satyam. It would have also disqualified PE firms from bidding.

“We have decided to open the window further, by allowing firms with managerial experience in the non-IT sector to bid for Satyam as long as they meet certain financial parameters such as net worth. Stand-alone PE firms will not be allowed to bid, but a PE player can make a joint-bid with a partner,” said the source. Some consortiums are in the process being formed.

There were always two views within the board, according to another person familiar with the matter. While one view was that the bidders should be restricted to firms with IT experience the other opinion was that it would narrow the field. The latter appears to have prevailed. “In the Indian software space a firm like Flextronics is being run by PE firm KKR,” said this person. The board, which met on Thursday, has asked the investment bankers Goldman Sachs and Avendus to formulate the guidelines for qualification. Sebi and the Company Law Board will have to approve these norms, the person quoted first said.

The board also inched closer to finalising the pricing guidelines for preferential allotment to a strategic investor. “The board is expected to give its recommendations on pricing to Sebi in a day or two,” this source said. Operational issues including cost-cutting were also discussed in Thursday’s meet.

The company is expected to adopt a two stage process while selecting a strategic investor. It will invite expression of interest (EOI) from prospective bidders. The board will short-list bidders based on the qualification criteria. After this the strategic investor will be selected from the short-listed bidders through a fair and transparent auction process that would be overseen by a retired Supreme Court judge or the former Chief Justice of India.

The Company Law Board (CLB) has already authorised the Satyam Board to make a minimum 26% preferential allotment of equity shares to a strategic investor and raising the company’s capital base to Rs 280 crore from Rs 160 crore, or to 140 crore shares from 80 crore shares.

The board could allow the strategic investor to buy up to 31% equity through a preferential allotment and an additional 20% through a mandatory open offer. A second round of preferential allotment of shares may be on the cards if the response from the open offer of shares is poor.