27 March 2009

Satyam - auction of prima donna?

The conditions of the new Satyam Board in auctioning part of the company is quite baffling. Here is the list I could figure from newspaper reports:

  • The process bars the successful bidder from selling or disposing any material assets for two years.
  • A three-year lock-in period for the winner of the bidding process on its entire shareholding from the date of public offer.
  • The new owner will not be allowed to discontinue the main business of the company or undertake any new unrelated business.
  • Shortlisted bidders will get access to overview of the current vision, strategy and operations of the company. None of the information provided by the company stands up to any warranty.
  • The new management has to cooperate with the investigating auhtorities like SEBI, SFIO, SEC, CBI, RoC and CLB who will continue their probl against the previous management.
  • Inability to freely throw out 100 key personnel.

All these combined with contingent liabilities running into billions of dollars makes the deal very unattractive. It would be better if the new Board acted as if they were selling a dubious company with infinite liabilities (no one will know these as these are under the domain of the US courts) rather than some prized company. I don't think the new Board can or should dictate any terms, simply because they are not in a bargaining position. Already, their acting tough has resulted in almost all bidders dropping off the radar. Ultimately, I think any winner will suffer a near certain winner's curse. Since a bulk of Satyam clients are based in the US, it will be relatively easy for enforcing a US court decree on Satyam.

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