Avendus and Goldman Sachs begin formal talks with suitors.
Almost two months after promoter Ramalinga Raju confessed to long-term financial fraud in Satyam Computer Services, the troubled company today received a green signal from markets regulator Securities and Exchange Board of India (Sebi) to divest a majority 51 per cent to a strategic partner, through a global competitive bidding process.
Board member Deepak Parekh met Minister of Corporate Affairs P C Gupta today in New Delhi and told reporters that the "stake sale process would begin soon". Investment bankers Avendus and Goldman Sachs, meanwhile, have already begun formal discussions with potential suitors.
The successful bidder will first get 31 per cent of the company’s share capital, after which it will be required to make an open offer to buy a minimum of 20 per cent of the company’s share capital. The open offer will be made at the same share price as the investor pays for the subscription. If the investor still fails to get 51 per cent, it will have the right to subscribe to additional newly-issued equity shares.
The investor will not be allowed to sell any equity shares acquired for three years from the date of the acquisition, although it can subscribe to additional ones. Qualified investors are expected to have total net assets in excess of $150 million (approximately Rs 780 crore). The company said it would announce details of the competitive bidding process later, but added that Satyam does not intend to register any securities in the US or to conduct a public offering of securities in the US.
Sources said an e-auction is also likely for the bidding process.
| OFF THE BLOCKS The successful bidder for Satyam: |
| * Gets 31% shares of Satyam’s share capital |
| * Then makes a 20% open offer at the same price it paid for the subscription of the 31% shares |
| * If it still fails to get 51%, it will have the right to subscribe to additional newly-issued equity shares |
| * The subsequent subscription, if any, will not require a further open offer |
| * Lock-in period of 3 years, although the investor will be able to subscribe to additional equity shares |
| * Qualified investors expected to have total net assets in excess of $150 mn |
The markets reacted positively to the news, with the company's stock jumping almost 20 per cent, to close at Rs 42.10 on the Bombay Stock Exchange.
At this price, an investor will have to pay Rs 1,284 crore for a 31 per cent stake (or 305 million shares), and Rs 820 crore for a 20 per cent stake (195 million shares on an expanded base) from the open offer.
Sebi had exempted Satyam from certain requirements of the Indian takeover regulations to facilitate the global competitive bidding process. The Company Law Board (CLB) has said the strategic investor should be selected through an open bidding process and that would be overseen by a retired judge. The entire process, which normally takes around 75 days, should be over in five or six weeks, said sources close to the development.
Among the leading contenders is global IT giant IBM; Larsen & Toubro (L&T), which owns 12 per cent in Satyam and expressed an interest to acquire management control; B K Modi-owned Spice group which also wants management control; Tech Mahindra and the Hinduja group.
"It's a step in the right direction and on expected lines," said Prabal Banerjee, Group CFO, Hinduja group. He added, though, that the company would need a clearer picture on the financials and hence "is evaluating" whether it should bid or not.
"What remains to be crucial is the details that we will receive on the financials. The information package the board plans to provide the bidders must be transparent enough to give a sense of the business. For us to be in the fray, the board will need details like P&L account, receivables, how much revenue is sustainable," concurred C P Gurnani, president, International operations, Tech Mahindra.
L&T expressed similar sentiments. "We will have to wait for the information document... whether this is just an enabling approval and whether there will be any modification," said L&T CFO Y M Deosthalee. L&T Chairman A M Naik told Press Trust of India: "One just cannot go by the lowest price, one will have to see what is the benefit in it for the shareholders."
Minority shareholders may not sell their stock if the bidders are reputed, added Banerjee. "Satyam's minority shareholders may feel the stock will shoot up if a reputed partner acquires Satyam. So, the open offer may not bear fruit.” Further, if the open offer fails, minority shareholders stand to lose again since the expansion of base capital will result in a further dilution of stock, he added.
