Satyam on the news

Announced that it was calling off the deal to acquire 100 per cent of Maytas Properties and 51 per cent controlling stake in Maytas Infra Ltd.
The stocks of Satyam plunged by 30.22 per cent and closed at Rs. 158.05 on the BSE due to severe resistance from the shareholders. The deal had fallen through after the ADRs (American Depository Receipts) on the New York Stock Exchange plummeted nearly 55 per cent, though they recovered in the after hours by 28 per cent.
Even as Satyam's deal to buy Maytas had to be hastily annulled in the wee hours of Wednesday morning as the company lost 52% on its ADR listed on the New York Stock Exchange (NYSE), a credibility crisis has begun to grip India's fouth largest IT company. "How can we trust the management of this company and its board of directors after it tried to enter into a deal that prime facie would benefit only the promoters who just own 8% of Satyam ? We have to examine whether the management needs to be changed," cried analysts in a reflection of the deep anguish caused by the now stymied move.
"We have decided not to move ahead with the acquisition in deference to the investment community's views," said Satyam in a SMS sent out at 3-45 am on Wednesday clearly shaken by the reaction on the US bourse of its move anounced barely 10 hours ago.
But this was clearly not enough to save the company: Satyam's stock tanked on the Indian bourses by 30%, even after the company announced its decision to go back on the deal. "The deal was seen as Satyam buying into companies owned by its family members. Cash from a company where the Raju family owns 8% was being transferred to a company where they hold more than 35%. This is what investors are resenting. Its become a corporate governance question. Whether the company can be trusted in future to take a proper decision is the moot issue," pointed out another analyst. Satyam's scrip closed at Rs 158.05 which is a 52 week low.
"58% of Satyam is owned by FIIs and they had no inkling that such a deal was in the works. There were questions about the future of Satyam after acquiring these companies when it doesn't have any experience in these businesses. It makes more sense to deploy your funds in related businesses or pay your investors," said Sourav Mahajan, analyst with Karvy.
Moreover, what irked investors was as to how Satyam decided to pay Rs 6,500 crore ($1.3 billion), just for Maytas Properties' assets, a land bank of 6,800 acres valued at almost Rs 1 crore per acre. "It is not easy to value real estate in this falling market. So there are questions on the valuation of the acquisition," said Monotosh Sinha, executive director of Centrum Capital.
Later in the day as the company started a firefighting exercise Satyam's chief financial officer (CFO), Srinivasa Vadlamani told TOI: "We never anticipated this reaction. We underestimated it. We thought we could manage it." He also indicated that the deal had been on the table for the last few months claiming that for starters many other companies were looked at for being acquired. But the choice fell on Maytas Properties because it was zero debt unlike other companies that were in the consideration zone.
"As for Maytas, it had cash on its books. So, it was a judgement call and sometimes some judgements do not turn out to be good," Ram Mynampati, president of Satyam and a board member tried to impress.
The company’s announcement rescinding its decision came in early on Wednesday.
“In deference to the views expressed by many investors, we have decided to call off these acquisitions,” B. Ramalinga Raju, Chairman of Satyam Computer Services, said in a statement.
Investors rapped Chief Financial Officer Srinivas Vadlamani and Mr. Raju for the decision during a conference call late on Tuesday, soon after the company announced the acquisition. They questioned the intentions behind the move to acquire companies in which Mr. Raju and his family members held considerable stake — 36 per cent in Maytas Infra and 35 per cent in Maytas Properties.
An investor said that the company’s decision affected the corporate governance practice and sought to know if any foreign institutional investor would come forth to invest in India in the wake of the proposed acquisition. A few other shareholders made no bones about their apprehensions relating to the cash flow to Mr. Raju’s family following the deal.