Several questions remain unanswered as yet about the Satyam-Tech Mahindra deal. How will it be structured? Will there be a private equity firm involved? Will it mean job losses? Will Tech Mahindra be able to get some money back from Maytas? How did the company arrive at the valuation? And what of the several class-action suits against Satyam in the US?
Like most merger and acquisition deals, this is one that can be argued from the “for” side. Or from the “against” one. Whatever the arguments, however, there do seem to be three clear winners, maybe even four.
Illustration: Jayachandran / Mint
The first is Indian business as a whole. Few global corporate governance or accounting scandals have been resolved as speedily as the Satyam one—the promptness can be attributed to the actions of the government and the company’s new board. That should be reassuring for investors seeking to invest in India.
The second is Tech Mahindra. The company manages to diversify its revenue profile— almost 60% of this currently comes from BT Group, which owns a little less than one-third of Tech Mahindra—in one swoop. Just as simply, Tech Mahindra manages to move into the exclusive club of large Indian software services firms. Tata Consultancy Services, Wipro, Infosys and HCL Technologies have a new Indian competitor. That would have seemed inconceivable 100 days ago.
The third winner is Satyam itself and its employees. The Mahindra group is one of India’s best-run conglomerates. It is also one of India’s best-governed business groups. Satyam, then, is in safe hands. And respectable ones.
Shareholders, too, will likely emerge winners from the deal, although that could take some time. Many of them are likely to have acquired Satyam shares at a price several times what Tech Mahindra is offering and, despite the tempting thought of selling out and cutting losses, they would do well to hold on to their shares. There seems to be not much danger of the deal falling through because the board has said new shares will be issued to Tech Mahindra should it not be able to acquire enough shares through the open offer. Sure, that will hit earnings per share in the short term, but if Tech Mahindra is able to take the deal to its logical denouement, shareholders will eventually find themselves with a position in one of India’s largest and best-run software firms.
Will Tech Mahindra’s Satyam acquisition be a happily-ever-after story? Tell us at email@example.com