Perhaps timing was wrong
Indian business community and general public got stunned when Mr.Ramalinga Raju of Satyam fame confessed his crime during market hours of Wednesday. Market capitalization of Satyam got wiped around 10 times to its previous close and almost all institutional investors have burnt their fingers. Till May2008, Satyam computers almost outperformed its peers in the market. Now things have drastically got changed. Infact institutions have to blame themselves for their loss. Had they permit Maytas (reverse spelling of Satyam) infra merger or possible buyout with Satyam they might have escaped from this sellout of their holdings with Satyam computers. Timing of pointing against Satyam has drastically cost institutions and they have lost almost $5billion of their value with Satyam computers.Ramalinga Raju in his confession has said that Maytas deal was his last opportunity to escape from his wrongdoings of Satyam computers. I personally believe that Ramalinga Raju could have escaped if he could have done this deal on the year 2008.During January 2008, real estate sector in India is perhaps hottest in its capital markets. Anyone with a tiny land in a village could list his company in NSE & BSE (2 premier national stock exchanges of India) to mint in millions. Real estate stocks were trading at 100 multiples and if you ask any analyst about valuations, you would have heard nonsense such as Indian consumers were sentimental to their homes. Domestic story is intact, land bank of a real estate companies are worth more than their market caps, Single project of a real estate company is larger than its market capitalization so on and so forth.Most of the FIIs viz., Lehman, JPM, GS has lost millions of dollars by investing in real estate companies where there is everything other than cash flow for their day today business. Yet they attracted more eyeballs and money in the capital markets compared to other sectors.If Ramalinga Raju might have tried his ambitious merger on January 2008, he could have become an icon. I knew these same analysts might come up with different analysis.What could be their analysis if this merger happened on Jan2008?
Following below could be their possible logic.
1. Information Technology merged with infrastructure could be win win situation for both the companies.
2. Satyam with its global brand visibility could add value to Maytas to bid for more ambitious projects, could create a company that could be first of its kind in Indian Industry.
3. Merged companies could have better margins that could add profitability and enhance value for its shareholders.
4. Satyam with the help of Maytas could fetch few government contracts for its software biz.
5. Strong balance sheet with good capital reserves could be helpful in long term.
Unfortunately for institutions (Ofcourse, they’ve lost billions) and for Mr.Raju himself timing of the deal was wrong. If he has done that last year he could have escaped from this fiasco.Perhaps timing was wrong.
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