Stock market regulator Securities and Exchange Board of India (Sebi) has done well not to rush into a hasty decision to alter takeover rules in the case of Satyam Computer Services Ltd. Here’s why.
Four potential acquirers have already thrown their hat into the ring—Larsen and Toubro, B.K. Modi’s Spice group, the Hinduja group and the Mahindra group. We assume that none of them is an asset stripper and they see long-term value in Satyam. There could be more suitors in the weeks ahead. And Satyam board member T.N. Manoharan told Mint last week that the beleaguered firm would not be carved up and sold, as that was not part of the mandate given by the government to the new board.
Illustration: Jayachandran / Mint
The problem is the price at which they can buy Satyam. Indian takeover regulations say that acquirers have to make an open offer to other shareholders once their holding in the target company crosses 15%. This open offer should be at the average price of the share over 26 weeks.
This pricing formula was originally designed to ensure that small investors get a good price when a company changes hand. But it ensures that any suitor for Satyam will have to pay much more than the current price of a Satyam share of around Rs60. That may put off acquirers.
Hence the clamour to change takeover rules in the special case of scam-scarred Satyam. But we have had two worries.
One, tweaking the takeover rules would create a precedent that can later be misused. So Sebi has done well to take a relook at the pricing formula for all takeovers, rather than just Satyam.
Two, the 26-week average price seems high right now because the Satyam share traded at close to Rs225 till mid-December, when B. Ramalinga Raju tried to merge it with Maytas Infrastructure. And then there was another steep fall after Raju admitted on 6 January that he had falsified Satyam’s accounts.
But the 26-week average price will drop as the weeks go by. And it is our guess that it will take several months for the acquirers to do their due diligence and the board to sign off on a sale.
The market price of Satyam, too, could climb as a deal gets closer. So, it is very likely that the gap between the 26-week average and current market price will narrow—the difference could be put down as a “control premium”. Given this, Sebi has been wise in not bowing to pressure to tweak rules for Satyam in a hurry.
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