The long and arduous battle to nurse fraud-hit Satyam Computer Services Ltd back to health has moved into the next stage, with several suitors still interested in buying a controlling stake in the firm.
The big question is how they will value a firm whose cash has been drained out and which is facing a pile of contingent liabilities because of a slew of class action suits in US courts. Meanwhile, the threat of losing more clients in the months ahead is still an issue.
Valuing a company in such circumstances will be part science and part art. The latter will involve a risky wager that the remaining assets and future cash flows of the technology services firm will be more valuable than the price paid to buy it.
The Indian stock market is currently valuing Satyam at around $600 million (Rs3,102 crore), but we wonder whether this is one case where the wisdom of the crowds should be mistrusted. The average shareholder or punter has almost no knowledge of the true state of Satyam’s finances. His stubborn attempts to value the company are worrisome.