It all began with Satyam wanting to acquire Maytas. The reason given was ‘diversification to hedge risks’. Sounds pretty innocuous. And such a deal actually got just a chance mention in the papers. Satyam would spend $1.3 billion to acquire the entire stake in Maytas Properties, an unlisted firm owned by the promoters of Satyam. It also planned to buy 51 per cent in Maytas Infrastructure, a listed firm in which the promoters of Satyam own 36 per cent, for around $300 million. All these transactions were to be funded by shareholders’ money. The investors were up in arms, since they were never consulted before such a deal could be inked. An interesting snippet pointed out in Rediff says – “The management points out that DLF’s market capitalisation is Rs 47,250 crore and that the company has approximately 750 million sq ft of land. But the two can hardly be compared—DLF has an established track record and brand. For that matter, the market capitalisation of Unitech, which has close to 650 million sq ft of land, is Rs 6,234 crore. The management is valuing Maytas Infrastructure, which has a market capitalisation of Rs 2,856 crore and has bagged orders worth $5.7 billion, at Rs 2,740 crore in line with SEBI guidelines. ” This sort of began to cast some doubt on the whole shady business. Investor pressure caused Satyam to call of the deal, but not before such pressure ‘surprised’ the now disgraced CEO Mr Raju. He had wanted the acquisition to go through, since he felt that this could boost ‘organic’ or ‘inorganic’ growth and be good for the firm! Ok, fine!! Whatever! And to appease investors, Satyam looked for a buyback or a dividend. Now, after so much has happened, it looks really farcical, and highly hypocritical!
Then the problem began to brew. On the 18th of December, came a piece of news that IT outsourcing contracts of over $200 million (around Rs 960 crore) which were up for renewal were being re looked at. Some of the major clients who have long-term strategic relationship with Satyam include Unilever, Nestle, DuPont, Cisco Systems, GE, Sony and Applied Materials. The Maytas move by Satyam, it was surmised, could trigger a possible review of their relationships with the company.
Fingers were raised on how ‘independent’ directors approved the decision. There were larger questions about the credibility of the Indian IT industry as a whole, while corporate governance became the hottest topic of debate, edging out terror and the crisis in the Middle East. Justified, when so many shareholders put their hard earned money on a firm. The last thing they expect is for that money to be used into a ‘family business’! There is a saying amongst financial circles – ‘Never underestimate the market, because the market knows what you don’t know, and it knows what you could know, long before you know it’. So, when investor sentiment drove the deal to be repealed, there was mass applause, that cheered that even if the firm cannot govern itself ethically, at least the markets are just.
Thereafter blame games began. Satyam said one of the Big Four were involved. All the Big Four denied any complicity. Some said that Satyam acted within the laws, some said shareholder consent was not needed. And it went on! The World Bank banned Satyam for 8 years. Satyam challenged the ban and demanded an apology. Raju wrote a cute letter to all employees that ran thus –
Dear Associates,
I am writing to inform you of what has developed since my note of December 18th and to outline plans to restore our stakeholders’ faith in Satyam.
The events of the past two weeks have raised many questions, but these can be distilled into two basic issues: the viability of our business strategy to diversify; and the effectiveness of our corporate governance.
Re: business strategy, you should understand that Satyam is completely committed to the IT services and BPO business, as we have been since our inception. While the idea that we could diversify into an unrelated business was rejected by our investors, it was formed with the belief that doing so would not imperil our leadership in our core business or lessen our commitment to it, and that all stakeholders would benefit.
Satyam did not — and does not now — intend to retreat from IT and BPO services in any way, and going forward, Satyam will focus exclusively on these markets.
Re: corporate governance, the board arrived at its decision to bid for Maytas by following all required processes and procedures, and while there was a spirited discussion among members, their vote to approve the motion was unanimous.
Further, Satyam has won numerous awards for excellence in corporate governance, including the Golden Peacock Global Award for Excellence in Corporate Governance on two separate occasions, most recently in 2008.
Over the past two weeks, we have been communicating these facts to our customers, and I’m very pleased to report that customers continue to show a high level of trust in Satyam.
We have also been in contact with many of our investors, and we have taken key steps to regain their confidence. These include strengthening the board by changing its size and composition, and engaging DSP Merrill Lynch to provide strategic advice and options. The board will meet on January 10, 2009 to consider these options and to chart a course of action that would boost stakeholders’ confidence further.
Please be assured that the board and the leadership team are doing everything possible to get Satyam back on track. We cannot do this without your help, however. I ask for your continued faith in Satyam and for your steadfast focus on your customers, especially in the face of wild speculation and unchecked rumor.
There is simply no more effective way to strengthen the company and to secure its future — and yours — than by delighting your customers.
Thank you very much for your commitment and support. Once again, I wish you the very best for 2009.
With warm regards,
Raju
How much more hypocritical can a human being be? Ironical that another letter, later termed as the notorious ‘5 page confessional’ actually brought the whole firm and indeed the Indian IT community down to its knees. On the 7th of January 2009, after having all along played the ‘Confident of a fightback, core-competence’ song, a letter to the board admitting massive fraud threw everyone into shock. As if the current credit crisis, Madoff, terror were not enough, one learnt of inflated cash and deflated liability! Here is the letter.
The headlines flew – Raju can get 10-year jail for cheating investors Satyam’s Raju can get a 7-year jail term Satyam employees in total disarray Sebi to probe Satyam market operations Not all Indian companies are Satyam 1 year needed to probe Satyam case Satyam interim CEO forms new team Tech Mahindra eyeing Satyam Raju may have left for US for Upaid case No complaint received against Raju: Police No govt takeover of Satyam: Nath Satyam: Auditors’ body to pull up PwC Satyam debacle not to impact IT industry: Wipro Satyam not first nor last fraud: Damodaran Satyam CAs, auditors may face severe punishment Ramalinga Raju: Conman in gentleman’s clothing? Satyam: India’s claim to Ponzi fame Time for hard look at corp governance: India Inc Ram Mynampati to be Satyam’s interim CEO Sebi ‘horrified’ by Satyam fraud Satyam issue may affect investor confidence Raju resigns, admits Rs 8,000 cr fraud Satyam interim CEO’s letter to employees Satyam to be stripped of corp governance award Satyam fiasco: CII shocked NSE removes Satyam from Nifty; replaced by Rel Cap Raju, a feared man in US and India Nasscom shocked; says Satyam is one-off case Satyam’s fraud will be inquired into: Andhra CM Satyam fraud a deliberate act: Infosys Govt to refer Satyam case to probe agency …..
The Saga continues, but all of this is a rude lesson on how excess greed can have horrendous repercussions. There will be more to come…..
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