Customer desertion could lower valuations of Satyam: iGate

Customer desertion could lower valuations of Satyam: iGate
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First Published: Tue, Mar 17 2009. 11 04 PM IST
Updated: Tue, Mar 17 2009. 11 04 PM IST
Hyderabad: Amid media reports of Satyam Computer Services Ltd losing a $32 million (about Rs164 crore) client, one of the firms bidding for 51% stake in Satyam, the US-based technology firm iGate Corp. has said such customer desertions should translate to lower valuations for the company.
An Australian newspaper, The Australian, reported on 17 March that the telecom company Telstra Corp. Ltd has “dumped scandal ridden outsourcing partner Satyam from an applications support contract believed to be worth $32 million a year”.
Citing unnamed sources, the Australian daily said the contract would now be awarded to Electronic Data Systems or EDS, owned by Hewlett-Packard Development Co. Lp. or HP. The report added that Telstra chief executive Sol Trujillo, who leaves the company on 30 June, was a member on the board of EDS before joining the telecom company in 2005.
According to the daily, Telstra refused to comment on terminating the contract with Satyam and said its “supply arrangements with individual vendors would not be announced to the media”.
Emails to Telstra from Mint remained unanswered, due to time zone differences.
When contacted, a Satyam spokesperson said “We do not comment on speculation related to individual clients.” Satyam chief executive A.S. Murty had recently visited markets in the Asia-Pacific region, including Australia. Wrapping up his visit in Singapore, Murty had said on 3 March: “It’s business as usual at Satyam.” Another Australian client of Satyam, National Australia Bank Ltd, had earlier announced it was suspending its contract with the Indian firm, pending further clarity on the future of the technology vendor.
A US based Satyam customer, SanDisk Corp. a storage devices maker, also indicated in one of its recent filing to the US market regulator that it may look for a replacement to Satyam, which is currently a vendor for SanDisk.
In January, State Farm Life Insurance Co., a Fortune 500 company had terminated its technology outsourcing contract with Satyam, valued at $10 million. After Satyam founder B. Ramalinga Raju’s revelation, in January, of an accounting scam to the tune of Rs7,136 crore at Satyam, several clients had expressed apprehensions about the company’s future.
In the wake of the scandal, government intervened to disband the then Satyam board, and put in place a new board which decided to bring in a strategic investor to revive the company.
IGate said such customer desertions could lead to lower valuations of Satyam.
“We have heard that customers and employees of (Satyam) were leaving and are concerned about the value erosion. The January and February numbers may not necessarily capture the future impact of customer loss in those months. Hence, I believe the estimate of 2009 revenue outlook is an important piece of information to have, especially in this current slowdown environment,” iGate chief executive officer Phaneesh Murthy told news agency PTI.
IGate has tied up with an unnamed $5.5 billion US-based private equity firm to back its bid for Satyam. IGate further said it would not bid for Satyam at the current market price.
On Tuesday, Satyam shares closed at Rs43.55 each on the Bombay Stock Exchange after falling 3.76% during the day’s trading.
Besides iGate, Larsen and Toubro Ltd, Tech Mahindra Ltd and Spice Group have submitted their expressions of interest for acquiring 51% of Satyam. Satyam’s board has set a deadline of 20 March for receiving detailed expression of interests from registered bidders, based on which it will select bidders, who will be provided information on company’s financials to enable them to arrive at a reasonable valuation of the company.
Meanwhile, on 18 March, a Hyderabad court will take up for hearing several petitions, including one by the Central Bureau of Investigation seeking custody of Ramalinga Raju and his brother.
PTI contributed to this story.
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First Published: Tue, Mar 17 2009. 11 04 PM IST
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