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India's Tech Mahindra wins majority stake in Satyam

John Ribeiro | April 13, 2009
Satyam's customers outside telecommunications industry may be dissatisfied

BANGALORE, 13 APRIL 2009 - Tech Mahindra, an Indian outsourcer which has British Telecommunications as a key client and investor, has won the bid for a majority stake in troubled outsourcer, Satyam Computer Services.

Venturbay Consultants, a subsidiary controlled by Tech Mahindra, has emerged as the highest bidder to acquire a controlling stake in Satyam, the company's government-nominated board said on Monday. The selection is subject to Indian government approval.

Tech Mahindra, with revenue of US$934.7 million in the Indian fiscal year to March 31, 2008, currently focuses on the telecom sector but the investment in Satyam will help it move into other industry segments.

Tech Mahindra may however find it difficult to win the confidence of Satyam's clients from other industries, said Sudin Apte, senior analyst at Forrester Research, said on Monday.

As a result, Tech Mahindra will gain between $900 million to $1 billion in revenue from the takeover, as some customers may drop Satyam as a supplier, Apte said.

Satyam's customers polled by Forrester said that they would prefer a large IT services provider with business in a number of industries, Apte said last week.

Tech Mahindra will pay 17.6 billion Indian Rupees (US$354 million) for a 31 percent stake in Satyam. It will be subscribing to a preferential allotment of new equity rather than existing equity, which will ensure the infusion of additional funds into the cash-strapped company.

Tech Mahindra will also have to make a public offer to other Satyam shareholders to buy another 20 per cent of the equity of the company at the price it will pay for the first round of equity. The combined total will give it a 51 percent share of the company.

Satyam was plunged into crisis in January when the company's founder B. Ramalinga Raju, said it had inflated profits for several years. The company's accounts are being re-stated.

The Indian government appointed soon after a board with its own representatives, to supersede Satyam's board.

The new board selected Tech Mahindra through a global competitive bidding process launched by Satyam on March 9. Three bidders from the short-list submitted both technical and financial bids on Monday.

Some prospective bidders backed out earlier, citing inadequate information on the finances of Satyam. The outsourcer is also facing class-action suits in the US from investors.

In the technical evaluation, bidders were evaluated for their organizational ability and experience in owning, operating and managing global information technology companies, their track record in managing distressed companies, revenues and profitability from Indian and overseas operations, and their strategic plan for Satyam, the Satyam board said.

 

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