Institutional investors in Satyam Computer Services, outraged by the management’s attempt to buy out two companies promoted by Chairman B Ramalinga Raju’s sons, appear to be holding on in the hope that the value of the stock would rise if a strategic buyer emerged on the scene.
With the promoters’ stake now believed to be down to just 4 per cent, it is inevitable that there will be a change in the management, investment bankers and analysts say. They point out that institutional investors would not mind an exit if they got a good price.
Moreover, four independent directors have resigned over the past few days, further hurting the credibility of the management. According to a Bloomberg report, Aberdeen Asset Management, possibly now the largest shareholder in Satyam with a stake of just over 5 per cent, said on Tuesday it was open to the idea of an investor picking up a stake in the outsourcer with a view to bring in new management to protect shareholders’ interest. However, a UBS report pointed out that a hostile management change could destroy value in the near term.
While some institutional investors are hoping for a change in the management with a strategic buyer coming in, some have cautioned that it might be better if the existing management continued for some time so that the business is not disrupted and engineers working on critical assignments for clients are not disturbed.
“Every option, whether it’s a PE buyout or an acquisition by an IT major, has its pros and cons,“ said a fund manager not wishing to be identified, adding that "it’s difficult to say which option will work best for the company".
Some believe that a change could be harmful and are willing to give the existing team a chance. The head of a fund, which has a stake in India’s fourth largest IT firm, told Business Standard that the management ‘has clearly realised its mistake’ and appeared to be keen to make amends. Institutional investors, who own around 60 per cent of the company’s equity of Rs 234 crore, believe that DSP Merrill Lynch, which has been appointed advisor to the company, would suggest ways to increase shareholder value. However, investors agree that there has been a ‘huge loss of confidence” and that it would take a long time for the management to regain the faith of investors.
With investors waiting and watching, the Satyam stock, which soared 9.4 per cent on Monday, was the top gainer among the Sensex scrips on Tuesday, rising 8.3 per cent to close at Rs160.60.
Given that the stock is trading at an attractive valuation and is sitting on cash reserves of over $1 billion, both private equity firms and information technology majors may want to pitch for a stake in the firm. Among the names being mentioned are IBM and Capgemini — which, according to analysts, would have synergies with Satyam — and PE firms such as TPG and KKR.
Satyam’s clients include Qantas Airways and General Electric. The allegations of bribery by the World Bank, notwithstanding, a couple of investors has pointed out that the company has fared reasonably well over the past few quarters in a difficult environment. Satyam plans to hold a board meeting on January 10, 2009, to consider options to improve shareholder value.
