Mangalam Srinivasan, a US-based academic who has been a director on the board of India's fourth-largest software exporter since July 1991, said she was resigning taking moral responsibility for voting in favour of the controversial acquisitions, a copy of the resignation letter made available to ET shows.
At least someone's taking responsibility.
Satyam's stock meanwhile has done well for the day, ending at 136. It's pretty badly beaten up since the acquisition notice and withdrawal, though.
"Satyam Seeks to Build Future for Its Family", screams a Motley fool headline. Berating Satyam for attempting to line it's promoter's family pockets with the hard-earned, interest-earning cash Satyam owns, Rich Duprey at Motley Fool calls it "ludicrous for Satyam to be purchasing the distressed assets of the chairmans sons', even if Maytas Properties and Maytas Infra would de-risk the core business."
But such deals are not uncommon, says Duprey.
Last year, for example, home decor outlet Bed Bath & Beyond (Nasdaq: BBBY) bought baby-goods retailer buybuy Baby from the sons of its co-chairman. They rationalized the purchase by saying that since women shop for home goods, selling pregnant women and new mothers baby stuff was a natural extension. Although the deal "only" cost $67 million, they might as well have opened an auto parts store since women drive cars, too.
Gap (NYSE: GPS) also doles out cash to family members, typically using the construction company of its founder's brother to build its new stores. Maybe it's the recession or a slowing of the number of new store openings, but Gap paid only $300,000 to the brother last year, down from $21 million in 2005. Quiksilver (NYSE: ZQK) is another example of a company that had to take big losses for its purchase of ski-maker Rossignol in a bid to help out a family friend.
An example in India was in Reliance Power Limited, where the Chota Ambani did some merger magic and ended up with about half the ownership of RPL for an investment of 1000 crores, the other half being owned by Reliance Energy (now called Reliance Infrastructure), a public company. The RPL IPO valued the company at 100,000 cr. which has now fallen to 30,000 cr. - and Reliance Energy, which obtained the 24,000 MW orders of power projects based on its experience and inexplicably handed them all over to Reliance Power, owns only 42% of it. The rest is shared by Anil Ambani's personal company (42%) and the rest of the world (16%). The promoter's ownership in RPL is worth Rs. 12,500 crores, for an investment of 1,000 cr., in about a year. Sweet, and only at the cost of Reliance Energy.
Meanwhile Reliance Energy, now called Reliance Infrastructure, has dropped in market price from 2500+ in Jan 08, to Rs. 620 today.
No one really cares because this stuff is common. And it seems to be so all over the world. Yet, once in a while, shareholder activism wins, and it's a hope for a new wold.
On Friday, Indiainfoline.com reported that Satyam Computer, one of the more popular IT companies in the country had failed to be entirely transparent about its disclosures. Nearly two years ago, in the course of putting through a set of complex mergers, the management had allotted a large number of shares at par to the brother-in-law of Satyam's main promoter, Ramalinga Raju. The benefit to him is estimated at over Rs 1500 million and had he sold the shares at their peak value of over Rs 7000 just over a month ago, the benefit could have been as high as over Rs 5000 million.
The report was picked up by television channels and led to a pandemonium at the company's annual general meeting at Hyderabad on Friday when angry shareholders demanded an explanation. The share price dropped 12 per cent on Friday and continued to fall on Monday when the management failed to come out with a credible explanation for its actions.
Anyone have a link to the online version of the India Infoline article? I have the content through a group post.
Around six to eight strategic clients of Hyderabad-headquartered IT services major Satyam Computer Services are understood to be thinking of re-evaluating their contracts as they are "no longer satisfied with the intent and focus of the company".
Satyam had planned to buy 31 per cent in Maytas Infra from the promoters at Rs 475 a share and make an open offer for an additional 20 per cent stake at Rs 525 per share. It also planned to buy out Maytas Properties, spending a total $1.6 billion on the deal.
Shares in Maytas Infra halted 20 per cent down at Rs 388.25 each on [Wednesday] and the downside continued on Thursday, with the stock losing 12.94 per cent to Rs 338.
Current trading (Thursday) at 308, no buyers, lower circuit. Tsk tsk.
The dramatic developments since the deal was announced and the 30% slide in the stock on Wednesday, seem to have shaken up some members of the senior management. “We cannot rule out anything, including a hostile takeover bid at this juncture, especially given the valuations now,” said Ram Maynampati, a whole-time director. While hostile bids are rare in India, the possibility of institutional investors paring their holdings has strengthened such perceptions.
With 8% promoter holding and such blatant cash-siphoning, what else would you expect?
Infrastructure Leasing & Financial Services Ltd (IL&FS) has begun negotiating with banks and financial institutions to raise money for the Rs 12, 132-crore Hyderabad metro rail project.
The move comes after Satyam Computer Services has dropped its plan to pick up a 51% stake in Maytas Infra, which is executing the rail project with other consortium partners, including IL&FS.
WTF? Why should the Satyam deal impact this funding plan? Satyam was going to pay the owners of Maytas infra, not the company itself, which would see NO CASH BENEFIT of the deal. It's not like oh, Satyam paid the shareholders 1500 cr., so it will someone find another 12,000 crore for us. How silly.
Satyam has always had a chequered history. It was one of Ketan Parekh’s, or K10, stocks. A couple of years ago the company was not in the ranking of the top IT companies that one was picking up. But over the past three years, with its consistent performance, it has moved up the ranking of being one the top three picks by most portfolio managers.
...
It may come as a surprise that Satyam has won the Golden Peacock Global Award for Excellence in Corporate Governance for 2008. This award was presented on September 23. Investor Relations Global Rankings (IRGR) rated Satyam as the company with Best Corporate Governance Practices for 2006 and 2007. It also won the Golden Peacock Award for Excellence in Corporate Governance from the Institute of Directors in New Delhi in 2002.
NOISY scenes prevailed at the 13th annual general meeting of Satyam Computers Ltd (SCL) here on Friday. A section of shareholders insisted that the company management had ``deprived'' and ``defrauded'' them by issuing shares to one of the promoter's fami ly members at a significant discount to the market price.
...
The scheme of amalgamation of Satyam Enterprise Solutions Ltd (SESL), Satyam Renaissance Consulting Ltd (SRCL) and Satyam Spark Solutions Ltd (SSSL) with SCL was approved by the shareholders in the court convened meeting held on May 28 last year and subs equently sanctioned by the Andhra Pradesh High Court. Pursuant to the scheme of amalgamation, eight lakh shares of Rs. 10 each of SCL were issued to the shareholders of SESL in the ratio of one share of the company for every one share held in the erstwhi le SESL.
According to the online report on Friday, a few months before the merger SESL issued rights at par. SESL's equity based increased from Rs. 3.1 crores to Rs. 4.12 crore consequent to the rights. Satyam Computer, however, picked up only four lakh of the 12 lakh shares offered on right basis. The remaining eight lakh shares were renounced in favour of Mr. C. Srinivasa Raju, a director of erstwhile SESL, who is now the Executive Director of SCL. The subsequent allotment of SCL shares (consequent upon merger ) to the SESL shareholders in the ratio of 1:1 enabled Mr. Srinivasa Raju to acquire a significant holding in SCL at Rs. 10 per share as against the then prevailing market price of Rs. 1,700 per share.
There's a lot more about that case in this online group post though the articles referenced are of 2000, and are no longer available.
Essentially, at that time, C. Srinivasa Raju (Ramalinga Raju's brother) purportedly benefited from a merger of some companies into Satyam (and everyone was named Satyam at the time, it seems). It was a surreptitious purchase into those companies by Brother Raju, 6 months prior to their acquisition by Satyam, that seemed to anger shareholders.
This is a nightmare beyond imagination. It's either time to evict the Rajus from their management positions or for the shareholders to press the eject button. It's not that this kind of muck does not happen - but when it happens a second or third time, it's a mess beyond imagination.
Even if you tell me the whole of Indian business is corrupt - if we don't stand up to this kind of blatant misuse everytime it happens, and make a scapegoat suffer, we aren't going to grow as an economy. Reliance power has suffered and will suffer more, and Satyam should pay the price for keeping its current CEO and board in place.
Late yesterday Satyam's founder Ramalinga Raju, who has been looking at the company's war chest sitting idle when there are good uses of the damn money, decided to take action. The best thing to do, he and his board decided, was to buy companies named the mirror-inverse of Satyam, i.e. Maytas.
For $1.6 billion, Satyam would buy Maytas Properties ($1.3 bn) and Maytas Infra ($0.3 bn) and get into the "infrastructure" space, building ports and roads and buildings and all that. You might wonder why a software and IT company would do this, but Raju's personal input was helped by the Satyam questionnaire for new recruits:
1. Can you code Java or C# or C++ or indeed any programming language? (Check all that apply)
2. If there is no programming project available, can you:
Lay bricks in an orderly fashion
Oversee cement blocks
Paint a wall (or a ceiling)
(Check all that apply)
Presumably most people had checked all, effectively giving him a multi-skilled workforce, so Raju decided he now had the ability to do what he did with I.T. Services to the Infrastructure space. We don't currently know what he did with I.T. Services, to be honest, but we'll assume that he did something.
By a quirk of fate, it turned out that the "Maytas" companies were largely owned by the Rajus themselves.
Maytas Infra is public, and the last price was Rs. 481 - and has 31% owned by the Raju family (actually 36%, of which Satyam's only buying 31%). Satyam had paid Rs. 475 for that would of course pay higher to other shareholders - Rs. 525 for the remaining 20% (which would be through an open offer). The total cost for this company - which earned a respectable 37 crores in the first half of 2008-09 versus an even more respectable 90 crores for the full 2007-08 - was a decent Rs. 1500 crore or so; a public company after all deserves to be paid a little bit of premium.
Maytas Properties on the other hand was a private company in which the Rajus owned 35%, and whose web site lists helpful questions and answers such as:
3) What are the formalities specified under the Indian Income Tax Law, if any, that one has to complete before or after selling any property, commercial or residential?
You have to obtain Permission under section 230A of the Income Tax Act if the value of the property to be sold is more than 5 lakhs.
Regular readers of the Income Tax Act would know that Section 230A has been removed since 2001. But these are minor errors of course, and no one reads the FAQ anyway, right?
Maytas properties lists a 75 acre SEZ, 2 small projects that are in construction , and a massive 300 acre project called Maytas hill county. The hill county project lists 2500 sq. apartments in far, far, far away land, at the not-quite-going price of 1 cr. (additional charges extra, going by the online site). The business model for all of this is, in my not-at-all-humble opinion, f***ed.
Satyam would take Maytas Properties over completely, paying $1.3 billion, or Rs. 6,500 crores for it. We don't yet know why, but the fact that a young Raju is the CEO of the company might have helped. It's not what you do, it's who you know.
Unfortunately some silly people thought this was not such a good idea, primarily because they weren't the Rajus. "What the F?" was a thought common in a lot of investors minds; who expressed it by selling-their-ass-off Satyam. The stock ended down 55%, a mindblowing record of sorts for Satyam, especially when the Dow ended UP 4.2%.
This has been a shocker for Raju, who was like - dude, when Citi can get away with it, when AIG can get away with it, and soon when GM and Chrysler can get away - why not me? This logic was lost on the average investor of Satyam's ADR, who could see, in the extreme fogginess prevalant in stock investing, the sucker in this deal: them.
Fortunately of course, the Raju's owned only 8% of Satyam, so the stock fall is not likely to dent their newly found fortunes. Or so they thought, until some folks got really belligerent against the deal, and quoted tax and company laws to hell and back, giving Raju the heebie jeebies of being a Madhoff and not a Citi: the difference being getting away with it.
In consideration of not getting ass-whipped in public, Satyam withdrew the "buyout" offer. So the case is now (sorta) closed, with Raju saying he was "surprised" by investor reaction to the deal, but would withdraw in deference of the fact that they seemed to have at least one brain cell working.
(He's gotta find out how to fund those stupid 1 crore projects in godforsaken land in some other way now, which is what is "surprising", I guess - why couldn't Satyam do that instead? So much easier to just pay him 8,000 crore (or an appropriate percentage) but some random jokers had to put a spanner in the works. )
Note: the tongue-in-cheekness of this post is only surpassed by the incredulousness, if there is such a word (okay, incredulity), felt by the author. WTF?
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