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The Satyam – Maytas affair

Satyam Computer Services, India’s 4th biggest software services provider, has been caught with it’s pants down, after it announced plans to acquire Maytas Infra and Maytas Properties for $1.6 bn – 51% in Maytas Infra for $1.3 bn and 100% in Maytas Properties for $300 mn. The key point here being that the money would go to the promoters of these companies, who incidentally, just “happen” to be Satyam Chairman Ramalinga Raju’s sons !!!

Rama Raju is one of the promoters of Maytas Properties, which develops urban infrastructure, whereas B Teja Raju is the vice-chairman of Maytas Infra, a 23-year old listed company engaged in infrastructure construction and asset development.

The Satyam ADR was hammered down 55% in the US markets, while the scrip tanked almost 33% in the Indian markets. Finally, the company called off it’s proposed takover yesterday after the furore caused by news of this acquisition led to a shareholder revolt.

Inspite of all his efforts to now clean up the mess, Ramalinga Raju has lost shareholder trust, goodwill and reputation, and it will take more than a share buyback or a special dividend etc to regain that trust.

His arrogance was in full view after announcing the deal, when he said shareholder approval was not needed. The man must be nuts !! The promoters hold less than 9% in Satyam, and to expect that he could carry through this acquisition of a non-aligned business unit was sheer stupidity and threw all corporate governance norms out of the window.

Having promoter or “Lala” managed companies is nothing new in India and owners often take shareholders for a ride, the DLF IPO last year being a case in point. However, just as promoters love money being poured in by FIIs, they have to fear their wrath as well, which is what happened in this case with major stakeholders instantly dumping the Satyam stock.

There are people of integrity and repute as Independent Directors on the Satyam board; M.Rammohan Rao-Dean, Indian School of Business, Prof. Krishna Kalepu-Ross Graham Walker Professor of Business Administration at Harvard Business School (incidentally a Director on the scammy Global Trust Bank as well), Vinod Dham-father of the Pentium, T.Prasad-former Cabinet Secretary, and it is amazing and scary to think none of these distinguished worthies felt like raising any objections to this deal, putting the entire role of Independent Directors under the scanner, not just in Satyam now, but corporate India, who’s image has taken a severe beating.

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