Institutional investors want to block acquisition of two Maytas firms.
Satyam Computer Services, India’s fourth-largest software services provider, today came under fire from institutional investors after the company announced its acquisition of two companies — Maytas Infra and Maytas Properties — for $1.6 billion (around Rs 7,680 crore).
The Satyam scrip took a heavy beating in the US market, with its ADR falling almost 55 per cent at 11.30 pm. In New Delhi, Minister of Corporate Affairs Prem Chand Gupta said he will study the deal and examine the details.
The company’s board had earlier in the day approved buying 51 per cent in Maytas Infra for $1.3 billion (around Rs 6,240 crore) and 100 per cent of Maytas Properties for $300 million (Rs 1,440 crore).
"The money will go to the promoters of Maytas Properties," Ramalinga Raju, Satyam’s founder and chairman, said in a conference call. He said the acquisition proposal does not require shareholders’ approval.
The sons of Ramalinga Raju sit on the boards of both these companies. Rama Raju Jr. is one of the key promoters of Maytas Properties, which develops urban infrastructure, and has been on its board since 2005.
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The other son, B Teja Raju, is the vice-chairman of Maytas Infra, a 23-year old listed company engaged in infrastructure construction and asset development. The company employs over 3,000 people. For the second quarter ended September 30, 2008, the company registered a net profit of Rs 17 crore on a turnover of Rs 354 crore.
Satyam proposes to acquire 31 per cent in Maytas Infra from the promoters at a price of Rs 475 a share and make an open offer for an additional 20 per cent. The open offer price has been approved at Rs 525 a share and is subject to change according to the Takeover Code norms.
“The process should take around two-three months. We will then decide if my elder son should continue in the business or not. We, nevertheless, have enough professionals to run this business,” Ramalinga Raju said.
The Satyam board admitted it was an “unconventional” deal, but insisted that the move to de-risk the company’s business was well thought out. “We thought of three options — distribute the available cash (around Rs 5,300 crore in hand) we have; buy back shares; or acquire companies. While we zeroed in on acquisitions, we felt that buying an IT firm would not make sense in the current environment. Hence, we thought of diversifying. We believe we can leverage the Satyam brand in our real estate move too,” Ramalinga Raju said.
Investors and minority shareholders were not impressed. On behalf of Templeton (minority shareholder), a participant said at the conference call that the move will deplete the company’s cash resources. “We don’t need Satyam to buy Maytas Infra. We are willing to go to any length to prevent this from happening,” he said.
An SBI Mutual Fund analyst accused the company of putting the whole FDI story at risk by making this move. “No foreign investor will trust any Indian company after this move. If there was no point pursuing growth in IT, you should have simply returned the money to shareholders,” he said.
Replying to a query on why Satyam, which has a strong balance sheet, is acquiring non-core businesses, Satyam Chief Financial Officer Srinivas Vadlamani said, “On the IT side, the business model is becoming riskier. Satyam is expecting a flat growth rate for FY10. Post-acquisition, it expects 20 per cent revenues to flow in from both the acquired companies in FY10 and 50 per cent by FY12,” he said.
Vadlamani said Maytas Properties currently has 6,800 acres of land bank, which has the potential to create 245 million square feet of built-up space, as against DLF’s 10,000 acres. “Looking at the valuation of DLF at Rs 16,000 crore, the current valuation of Maytas Properties at Rs 6,500 crore looks absolutely perfect,” he added.
Promoters of Satyam, led by Ramalinga Raju, hold 36 per cent in Maytas Infra, a Satyam spokesman said.
“The two acquisitions pave the way for accelerated growth in additional geographies and market segments such as transportation, energy and several infrastructure sectors for the core IT business,” Ramalinga Raju said, adding 75 per cent of the acquisition value “would be addressed by Satyam’s cash reserves” and the rest through debt.
Satyam shares closed up 0.5 per cent at Rs 226.50, while Maytas Infra closed down 2.3 percent at Rs 486 on the Bombay Stock Exchange. The deal was however announced after the Indian markets closed.
Somasekhar Sundaresan, Partner, J Sagar Associates, said a sale or purchase of shares does not require shareholder approval unless the board has been specifically restricted from doing so. “It’s not a legal issue, but a corporate governance issue,” he said.