A New Day Has Come...!!

On 8th January 2009 when I celebrated my birthday the best gift was given by Ramalingam Raju. Undoubtedly my personal interest was always in Satyam due to my holding in it but more than that I had few of my best friends working for the organization and also in my professional career I had started working in a team where I worked along side people from Satyam and my experience was excellent. To the extent of my earlier analysis of Satyam I would proudly say that Indian government and Indian incorporation as a whole has proven me absolutely wrong when I verdict last time that this is end of road for Satyam.

I am glad to say that the fate Lehman or Enron suffered, Satyam didn't fall to the same. Instead not only it rose from the ashes but now it will become the best fall and rise story to be told for decades in corporate world. The front line worriers put by Indian government not only proved why they were picked for this cause of damage control but out performed anyone by just in less than 100 days they sold the ill fated Satyam to it's best bidder. Restoring the trust for Satyam was the mightiest task they had in front of them. They had to first ensure to all stake holders and whole world that Saytam as a company is still capable of performing with the same strength. Great job done by the elite panel and surely my praises can't raise their effort to any greater level than they already are, supreme performance by all means. This not only clears any doubt on the corporate governance in India but also provides a view of how well regulated the Indian incorporation is and how well Indian government is capable of handling any abrupt event like this. This is going to restore trust of FII and FDI in Indian market which is a good news since prior to this news we have already witnessed a good contribution from FII and FDI and with event like this their market participation will only increase from here.

Here are some insights of my analysis on this acquisition from Tech Mahindra of Saytam.

Financially:

Tech Mahindra has a good brand backing it and most importantly it has only been in news for good reasons, therefore to say that they can be the best suitor for Satyam would not be an incorrect statement but when I say this then it would be a hypothetical statement. In real world Tech Mahindra has firstly over valued it's bid (58 Rs/Share) over the other two bidders which quoted 47 and 22 Rs/Share respectively which is 10 Rs/Share extra on 31% share of Satyam which cost them almost 3000 Crore which is around 51 Crore share from market. Now if they have paid 10 Rs extra each share then they have already made a loss of 500 Crore. The loss doesn't stop here. In order to take a complete ownership they will have to purchase at least 20% share from open market bid which is going to cost them between 58-68 Rs (Thanks to their overvalued bid of 58 Rs/Share). Lets say the price there is 60 Rs/Share then the next set of 20% share will cost them another 2300 Crore. It means 51% shares on 5300 Crore. This means they have already lost around 800 Crore well in advance. Lets talk about the other exclusion "the class suits" filed against Satyam. If you check historical data then easily if all the class suits can cost Tech Mahindra around 600 to 800 million dollars. Converting their earlier loss while purchasing share into dollars would add upto 160 million dollars. If we add both of them this will cost them around 1 billion dollar well in advance. Financially as per my calculation Tech Mahindra didn't do their home work well.

Client wise:

Tech Mahindra can be termed as India's best telecom service provider. With diversified portfolio of Satyam's client base one can say surely this acquisition will add feathers to the Tech Mahindra caps. But one must also understand that now this will be a different ball game together for the Tech Mahindra management. They are not experienced in dealing with the variety of domain clients (such as financial services, health care, banking, retail etc) Satyam's existing contracts are either expired or set to get expired soon. They would now need to renegotiate these contracts with them and while the recession going on and inexperienced management, the clients would surely make it tougher for them to agree on the same price of past. If they agree on lower price then it will add another loss into their balance sheet. (This is more likely to happen)


Friction within:

Tech Mahindra and Satyam are similar in terms the way they operate. Both have hasty bench strength which means now the utilization ratio for Tech Mahindra + Stayam would fall even further. This means there will be now Darwin's principle "Survival for the fittest" imposed for the entire work force (Especially the one which are on bench). With my personal understanding Satyam has one of the best set of SAP professionals, DBAs. They can be unarguably termed as the best back office management company in India. With best in class professional Satyam surely has upper hand when it comes to performance. This means when it will come to axe people it's more likely that it's a Tech Mahindra associate who is on the line of fire. This fact may be visible to some of Tech Mahindra associate now but soon it will be visible to everyone around and that's when you will start seeing the friction within these two companies. This acquisition is done to make profit not as a good will gesture so while making the decision of acquiring Satyam, Tech Mahindra must have evaluated such aftermath (I hope they have done this). I am not too sure on how the compensation part will be worked out (Although it would not make much difference since both companies have almost similar pay structure) but surely if either of them see them at a losing end on it (Specially Tech Mahindra) they would definitely raise their voice against it. From here I can see a good number of people getting axed in coming few months, surely lot of anxious moments & sleepless nights for people.

Although they may stand 4th in the total market capitalization in IT sector but persisting on that place would be a daunting task for them, surely next few months will be testing period for them. I would have liked some tier-I company like TCS/Infy/IBM/Accenture to take over Satyam but understandably with their own neck under sword of recession they preferred staying away from tainted Satyam. I wonder what would have been fate of Satyam's acquisition by any of these frontline companies. TCS would have been best suitor but since they are badly struck by recession they opted out of the race for Satyam, they are known for their aggressive approach in such scenario in past though.


Anyway today it's celebration time for Satyam and it's well wishers (including myself), lets forget all above analysis and enjoy this victory of hard work over greedy conscious. A new day has begun for Satyam and it's stake holders, I hope this CNTRL+ALT+DELETE restart will reboot them in safe mode!