The SATYAM – MAYTAS 1.6 $ Billion MAYHEM

The Indian It major Satyam astonished the entire world by announcing the acquisition of the closely family held firms MAYTAS PROPERTIES and Maytas INFRA. The two firms are promoted by the sons of Mr. Ramalinga Raju, the chief of IT major. Maytas infra is also listed at the NSE and the BSE which came out with a public issue during September-October 2007 and diluted 15.04% of its equity to the various categories of investors. The promoter group holds 36.64%.
On Tuesday evening,Dec16,2008, the Satyam board announced that it had agreed to buy 100% of Maytas Properties, a developer of master planned communities and other projects, and 51% of Maytas Infra, which provides infrastructure construction, including highways, railways, ports and other projects.
Satyam announced that it is paying $1.3 billion for Maytas Properties, and $300 million for its Maytas Infra stake, or $1.6 billion combined. This would mean that Satyam’s cash would be used to buy out the promoters of Maytas and this money would go to the promoters and not the company - Maytas.
This move was not liked by the investors of company, there are no synergies in the transactions, and that the deal raises “serious doubts over corporate governance.”
The Institutional investors such as Reliance Mutual Fund, SBI Mutual Fund and d Templeton also expressed dissent over the deal soon after it was announced, as a result of which Satyam's shares at the New York Stock Exchange plunged to its 52-week low of 5.43 dollars within minutes of market opening. The stock was trading 54.5 per cent down a t 5.71 dollars. According to the BSE Website, the promoters of Satyam Computer Services Ltd own a mere 8.61% shares as on the quarter-ended September 30, 2008. The institutions own whooping 61.57% of the shares on the other hand 19.4% shares are held by the depository against the ADRs issued by the company. If one were to add the institutional and ADR holding, it amounts to a staggering 80.97% making the promoters a very small group or percentage. And as per the Corporate Governance practices the will of the majority shareholders, prevails.
The questions being raised here are:
What was the need for a leading IT services provider to diversify and de-risk into infrastructure? Secondly, when things have slowed down, what is the fair value of the properties owned by Maytas Properties? The number of independent directors present at the controversial meeting? Whether the decision to withdraw was again taken by the board or the minority promoters of Satyam? If diversifying was important, why do it by buying out the promoters’ holding in a family-owned business?
This opposition made the Satyam’s to call off the controversial acquisition which made the ADRs to pull back form the day’s lows on the after market trading session on the NYSE.
The entire announcement now brought the company under the SEBI’s and the ministry of Corporate affairs scanner. P C Gupta (Minister - Corporate Affairs) told PTI, “We do not know the facts of the deal right now. But certainly if there is a violation of the Companies Act, we are going to look into it,'' “Unless we know we are not in a position to make a comment.''
This act of the company, has raised many question among the investors group and the fear of inefficient Corporate governance has led the brokers to downgrade the company as an investment opportunity.