Satyam's website on 14 April 2009 announcing Tech Mahindra's highest bid

Hyderabad, 14 Apr. Tech Mahindra Ltd. Placed the highest bid to acquire Satyam Computer Services Ltd. On 13 April 2009. This is just over four months after the massive accounting scandal was made public when the founder, Ramalinga Raju, confessed to inflating the books to over $1 billion above their worth.

The takeover bid is only a month after Satyam announced it was up for sale. Tech Mahindra bid Rs 58 per share, above what Larsen & Toubro and billionaire tycoon Wilbur Ross offered.

Tech Mahindra will own 31% of the IT mammoth at a cost of Rs1,757 crore, or slightly more than US $350 million.

“It looks like Mahindra got a bargain considering the firm is worth a reported $2.1 billion. Who knows what the real value is, but it’s surely more than Rs 1,757 crore for almost a third of the firm,” commented Francesco Gopalakrishnan, EconomyWatch correspondent.

“But then again, with the public’s suspicions up about accounting and auditing mishaps in Indian IT firms, they would have to get a deal to take over this scarred firm,” he added. “It’ll be a long, hard, road to build back confidence and trust.”

When the Satyam scandal hit the presses in early January this year, rumors and suspicions about India’s IT Industry spread like wildfire. “I didn’t think I could get any more business for a long, long time,” lamented Ishan Singh, the owner of a small business process outsourcing (BPO) firm in Hyderabad.

Tech Mahindra plans to extend its ownership up to 51% by purchasing an additional 20% at the same value. This brings Satyam’s valuation in Mahindra’s eyes to $1.1 billion. Tech Mahindra bid 20% more than the next-highest bidder and more than double the lowest bidder.

Satyam has offices in a dozen countries and employs 40,000. It has more than 650 clients around the world, and 185 of them are Fortune 500 corporations.

Tech Mahindra is an Indian conglomerate famous for its SUVs, tractors, and financial services. This foray into IT and outsourcing demonstrates the firm’s eagerness to diversify and expand.

During a news conference on Monday, Tech Mahindra Chairman Anand Mahindra explained the synergy the two firms could create, “Both companies can benefit from each other,” he said.

“Satyam provides a partner which is almost completely complimentary,” agreed Vineet Nayyar, vice chairman of Tech Mahindra.

Tech Mahindra was comfortable placing such a high bid in part because it and Satyam have almost no overlap. The bulk of Tech Mahindra’s software business is in telecommunications, a sector Satyam has largely kept out of.

Furthermore, in excess of 70% of Satyam’s business is in the US, providing additional diversification for Tech Mahindra.

Whenever mergers or acquisitions are made, job cuts will occur. And considering Satyam’s profit margins are below 3%, Tech Mahindra intends on even more cuts to increase profits.

But some are skeptical considering the lack of common ground the firms share. “There doesn’t seem to be any common thread of synergy,” said Edelweiss Securities analyst Viju George.

However, the CEO of Satyam, A. S. Murty, was certainly thankful for this renewal, “I would like to compliment each of the Satyamites and their families for standing together and with unflinched support, taking care of all our deliverables to our customers…We welcome the change and we make sure that all our stakeholders are completely delighted.”

Timeline of how the Satyam Computers Scandal Events Unfolded

-16 Dec 2008: Satyam deal to buy Raju-family-controlled companies, Maytas Infra and Maytaz Properties approved. Deals worth $1.6 billion.

-17 Dec: The market panics and Satyam share price plummets form Rs 190 to Rs 169.40 in one day. They Maytas buy is scrapped.

-6 Jan 2009: Share price is at 139.70.

-7 Jan: Raju confesses to massive accounting fraud but claims his friends and relatives knew nothing about it. Share price sinks to Rs 42.80.

-9 Jan: Raju and his brother, B. Rma Raju are arrested. Government dissolves Satyam's board.

-11 Jan: Independent board appointed to run the firm.

-24 Jan: Pricewaterhouse auditors arrested for their involvement in the scandal.

-27 Jan: Board of Satyam announces it will sell the company. They hire Avendus and Goldman Sachs.

-5 Apr: Three Satyam finance employees arrested.

-7 Apr: Police file charges against Raju.

-9 Apr: Board of Satyam announces bidding for the firm is open.

-13 Apr: Bid by Tech Mahindra wins, at Rs 58 per share. This values Satyam Computers at $1.1 billion.