India’s fourth-largest software company, Satyam Computer Services on Tuesday announced acquisition of 100% stake in Maytas Properties for $1.3 billion and 51% stake in Maytas Infra for $0.3 billion. The company’s decision, which comes as a surprise is being termed as a move to diversify its portfolio in non-IT sectors, which has been facing the heat of the global meltdown. Maytas, which is the reverse word for Satyam is promoted by two sons of B Ramalinga Raju, chairman and founder of Satyam Computer Service. The decision has been approved by the company’s board of directors. Analysts and institutional investors do not seem happy with this move and some are likely to oppose it.
While the acquisition of Maytas Properties would be immediate, in the case of Maytas Infra, Satyam will first acquire 31% from the promoters and then subsequently make an open offer for an additional 20% from the public as the company is a listed entity. While the price proposed to be paid to promoters is Rs 475 per share, the price for the open offer has been approved to be Rs 525 per share.
Reacting to the dissent expressed by IT analysts from various brokerage firms during the conference call scheduled by the company, Raju said that the acquisition does not mean the company is taking its focus away from the IT business. “We will continue to pursue opportunities in the IT and the BPO space. However, this business is becoming riskier and the cross currency headwinds also continue. Therefore we felt, instead of putting the money in another IT company, which may face the same set of issues, we should diversify our portfolio,” he said.
Raju said that one of the Big Four consultancy played advisors for the acquisition helping in the valuation process. However, he declined to reveal the name of the consultancy. On being asked why Satyam decided to invest in the infrastructure space which has also been impacted hugely by the financial crisis, Raju said, “I believe that the infrastructure story will continue in the country after some temporary set backs. Our shareholder’s will start seeing the value of the acquisition in the next 2-3 years,” he said.
Maytas has a land bank of 6,800 acre and is being valued by Saytam at around Rs 6,500 crore. According to the management of Satyam, the board of Satyam unanimously approved the decision. However, the shareholder approval has not been taken for the decision. Facing a high degree of criticism from both the global as well as India analyst fraternity, Raju ducked several questions pertaining as to why the company did not pass on the money to the shareholders or invest in an IT related businesses.
“Upto September 30, 2008 Satyam had a cash flow of Rs 5,360 crore in their book. As this deal will be over Rs 7,000 crore they have to look for other funding options such as debt. However, the company has not yet said anything about funding,” commented Harit Shah, an analyst with Angel Broking. Analysts and investment experts had taken a positive view of the company, even in these tough days, due to its cash reserves. Now, with these being deployed in another risky business is likely to cause the company shareholders damage, says a fund manager. While the share price on the Indian bourses remained positive, the ADR market had seen the price slide by 52%, at the time of going to print.
Maytas Infra, a 23-year old company, is engaged in the business of infrastructure construction and asset development encompassing areas like highways, metro railways, ports, transport management systems, airports, power, oil and gas, irrigation, water treatment.
Source: Financial Express