Satyam: Who can afford it? A Short Notes

Fraud-hit Satyam Computer Services closes registrations for potential bidders on Thursday, kicking off a process to sell a majority stake in the company caught in the country's biggest corporate scandal.

Some firms are likely to put in expressions of interest, attracted by Satyam's strong client base and its large workforce, but final bids will depend on clarity on Satyam's finances and legal liabilities.

Satyam has said it would provide short listed bidders access to certain business, financial and legal information.

Players in Race:

B K Modi

> Received Rs 2,191 cr from sale of Spice Communication

> Can bid at Rs 40 per share

> Will cost him Rs 1986 cr

Tech Mahindra

> Cash on books at Rs 4000 cr

> Can bid for Satyam till Rs 80 per share

> Will cost it Rs 3972 cr

L&T

> Cash on books at Rs 964 cr

> Investments in mutual funds at Rs 6800 cr

> Investable surplus of over Rs 7500 cr

> Can bid up to Rs 140 / share

> Will cost it Rs 6951 cr

> Total equity, post 31% offer at 97.36 cr shares

> Suitor will have to buy 51% i.e. 49.65 cr shares

At Rs 40 Rs 1986.14 Cr

At Rs 50 Rs 2482.68 Cr

At Rs 60 Rs 2979.22 Cr

At Rs 70 Rs 3475.75 Cr

At Rs 75 Rs 3724.02 Cr

At Rs 80 Rs 3972.29 Cr

At Rs 140 Rs 6951.50 Cr

Who will buy it and why?

Tech Mahindra

ü Interest in Satyam driven by strategy to form a telecom industry focused IT firm to full-fledged IT service company

ü Only one client of Tech Mahindra contributes 60% of revenue

ü No overlap in biz vertical, Tech Mahindra get 100% revenue from telecom vertical

ü Report of BT planning to sale stake, assured revenue of $2 bn may be in trouble

L&T Infotech

ü Reverse merger or takeover will provide back door entry to the stock exchange

ü Reverse merger will bring down long and complex procedure of listing

ü During tough environment, globally, financially sound companies take the reverse merger route to list

ü For the last three years, L&T Infotech has been trying to list on the bourses

ü Will save 1-2% of IPO expenses

Operational synergies

ü Scale up business to almost four times the current size

ü Analysts say L&T will post revenues of Rs 2000 cr in FY2009

ü Post acquistion of Satyam, it will become $2.65 billion from the $400 million currently

Vertical Synergies

ü Consolidate its strength in manufacturing through Satyam’s ERP practice

ü L&T Infotech derives 34% of manufacturing vertical, Satyam nearly 24%

ü Forrester says Satyam frittered away advantage of SAP practice due to fraud

ü Nearly 42-43% of Satyam’s revenue derives from ERP practice

ü Satyam’s ERP practice and L&T’s manufacturing focus will increase billing rate significantly

ü Exposure to financial service vertical through Satyam. L&T has been striving this for long

ü Post scandal, Satyam employees in ERP verticals are the only ones in high demand

ü Expertise in ERP solution would be a useful springboard of growth

About L&T Infotech

ü Set up 1997, over 10,000 employees

ü Contributes nearly 6.3% to L&T’s consolidated profit and loss account

ü Caters to clients like Hitachi, Lafarge, Chevron and BPCL

Data Sourced