How to leverage Esops for Satyam’s inclusive revival

In one of the fastest corporate takeovers in India’s business history,Satyam Computer Services Ltd’s ownership has been passed on to Tech Mahindra Ltd. The new owner, in right earnest, has infused the required funding in the business and also made a public offer for acquiring a 20% stake from minority shareholders, thereby conveying the seriousness of its intent to bail out the troubled company and provide comfort to anxious employees.

Satyam Esops need special care from Tech Mahindra for successful integration of the two companies.

An issue which has so far not been discussed, at least in the public domain, is what happens to the millions of employee stock options, or Esops, granted by Satyam to its employees, and which have not been exercised by them either because they are yet to vest or the market price was not attractive.

Among the top information technology companies, Satyam has been granting Esops to its key employees regularly since 1999 and is believed to have implemented successful plans which have benefited the employees as well as the company. It has been acknowledged even by the top management of Tech Mahindra that human resources integration would be the key to successful integration of the two companies. Retention of key Satyam staff would be critical in not only ensuring smooth transition but also adhering to the strict delivery timelines, ensuring quality of deliverables and in retaining clients. As in any people-oriented business, stock options have been central to employee motivation and retention at Satyam.

Satyam’s latest annual report gives the status of its Esop plans.

Purely from the legal perspective, the treatment to Satyam options would depend on the nature of integration Tech Mahindra has in mind. If it decides to merge the two companies (looks like a remote possibility given the unknown liabilities of Satyam) or if only the business of Satyam was to be merged with Tech Mahindra, the options holders will have to be either offered Tech Mahindra options or have the accelerated vesting, make the employees exercise them and offer Tech Mahindra shares as a part of the share-swap ratio. All the schemes of Satyam Esops provide for this mechanism in case of a merger or sale of business, and the rights of the option holders are fairly well protected.