Tech Mahindra wins bid to acquire Satyam

Tech Mahindra will pay more than $550 million for a controlling stake in Satyam Computer Services, throwing a lifeline to the fraud-hit firm and propelling itself into the top tier of Indian outsourcing firms.

Tech Mahindra, 31 percent owned by Britain's BT Group Plc, beat engineering conglomerate Larsen & Toubro, which many analysts had seen as front runner, as well as private equity firm WL Ross & Co to be the highest bidder for a stake of up to 51 percent in the company at the centre of India's biggest corporate scandal.

Satyam's sale could help restore confidence in India's IT services sector at a time when the global economic downturn has slowed growth. But Tech Mahindra will still have to move quickly to restore stability at its target.

"Tech Mahindra will really have to act fast now and if they don't ... client erosion will continue at Satyam," said Tarun Sisodia, head of research at Anand Rathi Financial Services.

Three months ago, Satyam's founder and chairman shocked investors by saying profits had been overstated for years, putting in doubt the survival of a company once ranked as India's fourth-largest software services exporter.

The government quickly stepped in and sacked the board to limit damage to India's once-shining IT sector.

CALCULATED RISK

Mumbai-headquartered Tech Mahindra said it would meet Satyam clients such as Citigroup Inc and Cisco Systems Inc to help restore confidence.

"We have taken on a challenge but we are going to make it work," Chairman Anand Mahindra told reporters. "We have taken a very calculated risk ... We think they are reasonable risks, but there are going to be risks."

With the buy, Tech Mahindra will be better equipped to wrest market share from rivals Tata Consultancy Services, Infosys Technologies and Wipro, and diversify away from telecoms, analysts said.

Satyam's annual revenue fell to about $1.5 billion at the end of the March and could fall to $1.3 billion in the year to end-June, Tech Mahindra CEO Vineet Nayyar said.

The bid has to be approved by the Company Law Board, which expects Satyam to seek approval within two to three days.

Tech Mahindra will pay $351 million for a 31 percent preferential allotment of new shares and will then make an open offer for a further 20 percent of the company at a cost of up to around $225 million.

The holders of Satyam's American Depository Shares would be able to participate in the public offer.

Tech Mahindra plans to raise 6 billion rupees through the sale of bonds, sources told Reuters.

The combined entity will have about 73,000 staff and Tech Mahindra will become India's fourth-largest outsourcing firm from a current ranking of sixth.

Tech Mahindra, a unit of tractor and utility vehicle maker Mahindra & Mahindra, offered 58 rupees a share, a premium of 23 percent to Satyam's previous close.

Tech Mahindra shares surged by as much as 25 percent after Larsen & Toubro, which owns 12 percent of Satyam, was reported to be out of the race, but trimmed gains to end up 12.3 percent at 359.45 rupees, their highest close in nearly six months.

Satyam shares rose 3.6 percent to 48.85 rupees, after earlier jumping more than 16 percent to a nine-week high.

UNCERTAINTY OVER VALUATION

Analysts have said Satyam, which means "truth" in Sanskrit, looks attractive due to its long list of blue chip clients. However, they were unsure how to value the company due to uncertainty about its accounts and legal liabilities arising from lawsuits filed in the United States by its shareholders.

The vast majority of Satyam's customers have stayed on through the stake sale, Karnik said. Staffing has dropped by about 5,000 from 53,000 reported at end-September.

Tech Mahindra's Nayyar said the bid was made after an assessment of legal liabilities, but said Satyam's financial viability and retention of clients would be key challenges.

Satyam has not reported results since releasing July-September figures in October. Its accounts are in the process of being restated.

Satyam's board had appointed Goldman Sachs and Avendus Capital to find a strategic investor. Tech Mahindra was advised by Kotak Investment Banking and UBS.

(Additional reporting by Prashant Mehra, Narayanan Somasundaram and Devidutta Tripathy)

Satyam suitor backs away; new CEO takes charge

A potential bidder for fraud-tainted India's Satyam Computer Services backed away from a deal on Friday, a day after as the outsourcing company named a new chief executive and secured funding to help retain clients and employees.

U.S.-based iGate Corp now has no interest in buying Satyam due to lack of clarity on liabilities of the company -- snared in India's biggest corporate scandal -- Chief Executive Phaneesh Murthy told Reuters on Friday.

"I have very little interest or no interest left in this company right now," said Murthy, who was previously the global sales chief at rival Infosys Technologies and spearheaded strong sales growth in the key U.S. market.

Satyam has been battling for survival after founder and former chairman Ramalinga Raju disclosed last month profits had been overstated for years. Raju is now in jail pending trial.

On Thursday, Satyam's government-appointed board named A.S. Murty, a company veteran of 15 years, as its new chief executive.

"My interest has progressively been coming down with every passing day. And my concern is that the restatement of financial statements will take anywhere from three to six months," iGate's Murthy told Reuters from Fremont, California.

iGate said last month it was keen to acquire Satyam, helped by private equity funds, joining other potential bidders including Larsen and Toubro, attracted by Satyam's global clients.

Analysts say it is unlikely an outline for a bidding process could be framed until there is clarity on changes to India's takeover rules and a restatement of Satyam's accounts.

"The key is how fast the company gets the things sorted out, because as time passes the interest of potential buyers will keep coming down," said Tejas Doshi, head of research at Sushil Finance.

Shares in Satyam, whose market value has plunged to about $670 million from $7 billion in May 2008, were up 5 percent.

Satyam's board has named Goldman Sachs and India's Avendus to find a strategic bidder for the company.

"We are not getting any comfort that the government will actually pick up liabilities and I think the government stand publicly is that they will not pick up any liability," iGate's Murthy said, referring to Satyam's legal and other liabilities.

India's Spice Group and the diversified Hinduja Group are among those who have shown interest to acquire Satyam, attracted by its 600-plus clients such as General Electric, Cisco and Coca Cola.

National Australia Bank, Australia's largest lender, said on Thursday it would suspend new contracts awarded to Satyam

Satyam may have inflated employee count - report

Satyam Computer Services Ltd may have up to a fifth fewer staff than the Indian outsourcing company has said it has, the Economic Times said on Tuesday, citing an unnamed source familiar with a fraud probe.

The newspaper said the Serious Frauds Investigation Office believes Satyam's headcount could have been inflated by 15-20 percent to siphon off money as salary payments to non-existent employees.

"Since a major chunk of the costs were actually salaries, a minor distortion in the number of employees could change the personnel expenses significantly," the paper quoted the source as saying.

Asked to comment on the report, a Satyam spokeswoman told Reuters: "We believe the numbers are accurate at this point of time."

The Economic Times also said engineering and construction firm Larsen & Toubro had appointed Japan's Nomura to advise it on a possible deal with Satyam, in which it already has a stake of about 4 percent.

A spokesman for Larsen said the company does not comment on market speculation.

The newspaper also said unlisted Aegis, part of India's Essar Group, was interested in buying Satyam's business process outsourcing (BPO) business.

"As a group, we constantly look at opportunities in sectors where we are. We would not like to comment on specific proposals," an Essar spokesman said.

Manpower expenses constitute more than 60 percent of total costs at Satyam, and investigators say the ratio of manpower cost to revenue has remained constant over the past three years despite an increase in the number of employees, the Economic Times said.

The company's website says it had close to 53,000 staff, including those in subsidiaries and joint ventures as at end-September, and it has since said that around 2,000 staff have left.

Satyam, India's No.4 software services exporter, was plunged into crisis after founder Ramalinga Raju resigned as chairman earlier this month, revealing profits had been falsified for years and $1 billion of cash on the books did not exist.