17 December 2008

Satyam - name and reputation are upside down

The story till now in brief:
Satyam, one of the leading software and BPO companies of India declared yesterday (16th Dec) after market close that it was planning to buy large stakes (100% and 51%) in two promoter companies. Maytas and Maytas Infrastructure (the word Maytas is Satyam written backwards) are promoted by the family of the executive Chairman of Satyam Ramalinga Raju. In a remarkably noisy protest against the move by investors,
including the usually sleepy mutual funds, perhaps for the first time in the history of corporate India a reversal of the perverted decision occurred in around 12 hours - today morning (17 Dec). Helpful in injecting some sense was the hand played by a 56% reduction in the value of the depository stock in the US markets.

While the combined valuation of $ 1.6 billion for property and infrastructure companies sounds high, given the steep expected fall in real estate prices over the next few months, the so called synergies between the three firms took the cake in terms of comic fiction.

“Mr Raju said the two companies would be helped by Satyam’s ‘soft’ skills in infrastructure vertical.”

Synergy between software and real estate development? Whoa, and saying that with a straight face on TV was truly an achievement of sorts for Ramalinga Raju.

My second favourite cynical quote of Raju is: “With regard to Maytas Infra, he said the valuation was based on SEBI guidelines.” Whoa, so now it’s SEBI’s fault that you grossly overvalued your sons’ companies? Raju bhai, SEBI prescribes minimum standards of governance and valuation disclosures not valuation levels and their fairness – and most of them are geared towards honest arms length transactions.

The Chairman said there was no need to go to the shareholders for the transaction under present Indian laws. Sure, but there is nothing in the law which prohibits you from going to the shareholders, particularly when the deal is so incestuous and the Board, a majority of which is interested, decides the outcome of the deal.

Here is another jewel “Our advisor was one of the Big Four consulting firms. We have signed a confidentiality agreement with them, and I therefore cannot disclose the name.” The confidence belongs to Satyam, so it would be legitimate for the accounting firm to cite confidentiality – it is bizarre for the company to cite confidentiality.

What is most disturbing about this is a statement made by Raju yesterday on TV, saying the decision by the Board was 'unanimous'. So I thought, I'll go hunting for the exchange disclosure about the decision. Also I would need to go look for the august list of 'independent' directors.


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