Spice group board meets to mull exit.
Lack of transparency in the bidding process for Satyam Computer Services appears to be testing the patience of those who have bid for the troubled IT firm, even as the due diligence process is understood to have begun and is expected to continue till the first week of April.
Spice Group Chairman BK Modi, which has completed the second round of bidding, today said he might withdraw from the race, as the process was not transparent. He added he did not know who the other bidders were and had got no clarity from the board in this regard. The Spice group board is meeting tonight to take a decision.
The Satyam stock was down 3.11 per cent today and closed at Rs 41.80 on the Bombay Stock Exchange (BSE). It has dropped a little over 10 per cent in the past month.
Market views are mixed. “People have been complaining about transparency a lot, primarily because one set of parties is proactively talking about it. The uncertainty is impacting Satyam,” said Deven Choksey, MD, KR Choksey Securities.
“I think the process has been fair and transparent. Yes, there have been some parties that have been making noise in the media, but the serious bidders are taking the process very seriously. As for the share price, there is a bit of uncertainty about the price at which the bidding will start, but otherwise, I think the process has been managed quite well,” said Sachi Bansal, VP (research), Pinc Research.
The bidders have been dogged by concerns such as how to value Satyam without the restated accounts (which may not be out before end-June) and the liabilities arising out of the 13 class action suits in the US, besides the damages that may arise. How much attrition has taken place (especially among senior Satyamities) and how many clients have switched are the other questions.
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Indian players Larsen & Toubro, the Spice group and Tech Mahindra have independently confirmed having completed the second round of the bidding process by putting in Rs 1,500 crore, which will be put in an escrow account. iGate, which had participated in the first round, left in the second. Earlier, the Hinduja group had decided to opt out.
There’s no confirmation or denial on participation from global majors like IBM or the private equity firms that are said to be in the race. Reports, however, show that PE firms like KKR and Texas Pacific Group have pulled out of the race and so have transnationals like HP.
There are also concerns about the financial health of the company. Satyam’s revenue may dip to around $600 million by FY10 if an Indian bidder acquires it, says Avinash Vashishta, CEO and MD, Tholons Advisory. If an MNC buys it, there’s a chance that more clients may hold on, he says. “However, we still peg the FY10 revenue at not more than $1 billion,” he said. The reason is that many clients have already put in place their transition plans. Of these, many have a number of vendors.
Any acquisition will require a detailed due diligence by the buyers and a high degree of transparency from the acquirer’s perspective, says Siddharth Pai, MD, TPI.
“I cannot comment on the bidding procedure, but it is certainly impacting clients. They are keen to know who is going to acquire the firm. As of now, clients are holding on, but their next step will depend on who acquires the firm,” said Sabyasachi Satpathi, director and co-founder, Mindplex Consulting.
The value of brand Satyam has eroded many times over, following its former chairman Ramalinga Raju’s admission that he had cooked up company’s books. From Rs 9,873 crore (Satyam’s internal brand valuation mentioned in its FY08 annual report), Harish Bijoor, brand-strategy specialist and CEO of Harish Bijoor Consults, pegs the current value at around Rs 1,280 crore — an 87 per cent fall. Bijoor used the discounted cash-flow method and other parameters.
He, of course, assumes that Satyam has 44,000 (and not 53,000) employees and all are “valuable.” Next, he has assumed that even after the fiasco, and clients leaving Satyam, “around 60 per cent of the business remains”and Satyam remains a going concern.