Why the hurry to marry Satyam off?

SEBI and the Company Law Board have shown great alacrity in the last few days, rewriting rules and granting exemptions from legal requirements to help Satyam find a new owner. Yet, with the restatement of the balance sheet still on, how will bidders and the new Board assess the worth of the company, asks RAGHUVIR SRINIVASAN.

The government appointed Board of Directors of Satyam Computer Services has made all the right moves in the last one month in its effort to first save the company from collapse, and then, get it back on its feet. Operating in an adverse atmosphere rife with rumours of customers walking away and imminent collapse of the company, the new Board has done remarkably well to bring Satyam to a stage where it can now hope to sell the company in one piece to a responsible buyer for a good price.

Yet the Board now faces its biggest, and most crucial, test in finalising a strategic buyer for the stricken company.

Even as the drama unfolds, the question that begs an answer is: Is it time to hand over the company to a strategic buyer?

The answer is: no. Satyam now is akin to a seriously ill patient who’s just been moved out of ICU into the nursing ward. How can one consider the patient’s marriage when she’s still in a delicate stage of convalescence?

Indeed, it is curious that at least four different buyers are in the race for Satyam even before its correct balance-sheet is drawn up. The restatement of its accounts is still on and it could be a few more weeks before the true financial picture is revealed.

Given this, how will the prospective buyers assess Satyam’s worth? What will the new Board base its asking price on? Surely not the current market price, because it is as misleading as the price based on SEBI’s open offer formula (average of the last six months’ market price).

Stabilising slowly

The market regulator, SEBI, and the Company Law Board have shown great alacrity in the last few days, rewriting rules and granting exemptions from legal requirements to help Satyam find a new owner. Why this seemingly unholy hurry among all concerned to marry Satyam off?

The company is gradually stabilising and this is the time for the Board to fully back the new CEO at the helm. Waiting for the operations to get back to normal and the balance sheet to be restated before inviting suitors does not appear to be a bad strategy at this point in time. Unless, of course, if it is feared that the restated balance sheet will reveal an ugly picture of Satyam’s real financial state.

Current indicators do not appear to point that way. Satyam’s business appears largely unhurt, even if a couple of its customers may have moved out.

It has actually bagged work-extensions and new orders worth $250 million in the period since the scandal became public.

The company has been able to meet its commitments to employees and vendors in the troubled period of the last month and has also been successful in securing bank funding of Rs 600 crore.

As the new Board has stated ad nauseam, the company has unencumbered assets in land and buildings and its employee count is what was stated at the time of its last financial results announcement in October, give or take a few due to natural attrition.

Yes, Satyam is certainly considerably lighter on cash assets as revealed in its last results but that does not make it a basket case that has to be sold off in a hurry.

Indeed, the considerable interest shown by the four suitors — L&T, B. K. Modi, Hinduja Group and Tech Mahindra — confirms that the value in Satyam, despite the plunder by Mr Ramalinga Raju, remains intact.

The prospective buyers seem to have either correctly assessed this or — as the L&T CEO Mr A. M. Naik said and got into trouble with SEBI for it — are privy to information not available in the public domain about Satyam’s correct financial position.

The urgency shown by at least two of them to bag the prize probably gives the game away. They seem to want to push through a deal at the lowest possible price, which is feasible only it is finalised now. And those concerned, the government, SEBI, CLB and indeed, even the new Board, seem to be wittingly or unwittingly helping the cause.

True value

In all this din, the public shareholder seems to have been forgotten. Consider the plight of shareholders who bought the Satyam stock even four months back when it was ruling at over Rs 300.

A deal with a strategic buyer, in the prevailing circumstances, may fetch them only a fraction of the price that they paid. Of course, equity investment is risky but will the price that they now get reflect the inherent, true value of Satyam?

There is thus, considerable responsibility riding on the shoulders of Satyam’s government-appointed Board.

On it devolves the onerous task of striking a balance between ensuring that Satyam gets a strong buyer who can take the company forward, and getting the best possible price from him for the existing minority shareholders.

Will Deepak Parekh and Co. succumb to the pressures from the prospective suitors and marry Satyam off in a hurry or will they wait and choose the best groom who can give her a good life? As in any arranged marriage, the elders — government and CLB — may well hold the answer.

Raghuvir Srinivasan B.L