Bangalore: Fraud-hit Satyam Computer Services’ search for a white knight could end on Monday, but bidders face an uphill task to put a price tag on the Indian company due to uncertainty about its finances and liabilities.
The government-appointed board meets on Monday to receive bids from suitors. On the same day, it could announce a buyer of a 51% stake in the outsourcing company that had to scramble to raise funding to meet short-term needs this year.
Three months ago, Satyam’s founder and chairman shocked investors by saying profits had been overstated for years, and putting in doubt the survival of the company once ranked as India’s fourth largest outsourcing firm.
The government quickly stepped in and sacked the board as it sought to limit damage from India’s biggest corporate scandal.
Also Read The Satyam Fiasco (Full Coverage)
Satyam’s board met in Mumbai on Thursday, in a move analysts said could be to finalise the procedures for Monday. Chairman Kiran Karnik told Reuters the due diligence by suitors of Satyam was still going on.
Indian engineering conglomerate Larsen & Toubro, which has a small software services unit, mid-sized outsourcer Tech Mahindra and US private equity firm WL Ross & Co are among the suitors.
Larsen & Toubro, which has built up a stake of about 12% in Satyam, is seen by many analysts as a front-runner.
“For now, our advice could be skewed to a price lower than the current market price, but at the end of the day we want to win. So there can be some room left to go higher,” said an investment banker, who did not want to be named as he was not authorised to speak to the media.
Indian media have reported IT services provider Cognizant Technology Solutions has joined the race. A spokesman for the US company declined to comment to Reuters on market speculation.
New York-listed Satyam’s market value has plunged to around $600 million from $7 billion in May. The stock ended at Rs47.15 (90 US cents) on Thursday, down more than 90% from its last year’s high of Rs544.
Analysts said Satyam looks attractive due to its long list of marquee clients and due to the plunge in market value.
However, they are unsure how to value the company due to uncertainty about its accounts and legal liabilities arising from the lawsuits filed in the United States by its shareholders.
Indian media has reported more than 40 clients of Satyam have left the company since the revelation of the $1 billion-plus fraud, but Satyam has declined comment.
No intensive bidding
Tarun Sisodia, head of research at Anand Rathi Financial Services in Mumbai, did not expect bids to top Rs60 a share.
“I don’t think the bidding will be intensive. If anything, the market would be disappointed by the outcome of the bidding,” he said. “Bidders will be extremely cautious in going overboard given the lack of information.”
In October, Satyam had said it had around 53,000 employees and more than 600 clients including General Electric, Cisco Systems, and Qantas Airways.
Investment banking sources with knowledge of the proceedings said bids would be finalised only after due diligence was completed.
The inspection by bidders is being done through access to data containing “certain non-public information”, and Satyam’s management will provide an overview of operations and strategy.
Forrester said in a report last week while the sale would allay fears about Satyam’s survival, clients would still face uncertainty about the acquired outsourcer’s direction, service offerings and client relationship.
“Another uncertainty is the risk that the deal falls apart and Satyam goes back to square one,” Sudin Apte, country head of the market research firm, wrote in the report.
On Tuesday, Central Bureau of Investigation (CBI) filed charges against nine people including Satyam’s founder, former chief financial offer, former managing director and two former external auditers. All of them are being held in jail.
Satyam has not reported earnings since reporting July-September in October as its accounts are being restated.