Outside directors pick holes in Satyam story

Outside directors pick holes in Satyam story

Hyderabad: In a dramatic new twist to lingering corporate governance questions over Satyam Computer Services Ltd’s failed buyout of two firms owned by its chairman’s family, at least one independent director is now saying the board hadn’t fully signed off on the $1.6 billion, or Rs7,568-crore, valuation placed on the two companies by Satyam management.

T.R. Prasad, a former cabinet secretary and an independent Satyam director, told Mint that the $1.3 billion valuation of Maytas Properties Pvt. Ltd was “not accepted" by the board at its 16 December meeting. The remaining $300 million was to be paid for a 51% stake in Maytas Infra Ltd.

“A proposal for acquisition was cleared by the board, but at what price, when and how was not decided," Prasad told Mint in two separate conversations on Monday.

A second independent director on the Satyam board confirmed Prasad’s comments, adding there were other suggestions made at the 16 December meeting. “There were several suggestions from the board members regarding valuation and those were to be taken up during the due diligence process, which was yet to be done," said V.S. Raju, a former director of Indian Institute of Technology, Delhi. “Now that the deal has been called off, all such discussions are academic in nature."

A spokesperson for Satyam declined to comment saying she “did not have official information" regarding the board not accepting the valuation.

Prasad’s comments sharply undercut the continued arguments offered by the Satyam management, particularly its chairman Ramalinga Raju, that the transaction was good value for Satyam and was only abandoned because key shareholders vehemently opposed it immediately after it was announced as a fait accompli by the computer company, citing a need to diversify.

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Satyam called off the acquisition plan at 2.15am on Wednesday, some 10 hours after announcing board approval for the transaction on Tuesday evening, when its New York Stock Exchange-listed American depository receipts more than halved in value.

While the Indian shares have recovered somewhat since, they are still down 28.3% since the deal was first announced.

On Monday, Satyam’s shares closed flat at Rs162.45 a share on the Bombay Stock Exchange.

Analysts and investors have described the valuation of privately held Maytas Properties, some 35% of which is controlled by Ramalinga Raju’s family, as opaque, especially at a time when the real estate business was in a sharp downturn, and have repeatedly questioned the basis for Satyam agreeing to pay $1.3 billion.

After the 16 December board meeting, both Ramalinga Raju and Satyam’s chief financial officer, Srinivas Vadlamani, claimed that the company had taken the advice of a so-called Big Four audit firm for the valuation.

On Monday, KPMG, PricewaterhouseCoopers, Deloitte and Ernst and Young, reiterated what they had told The Economic Times for an article that newspaper published on Monday—that they were not involved in the Satyam-Maytas deal.

Satyam management refuses to disclose who valued Maytas assets, claiming a non-disclosure agreement.

It was unclear to Mint if the non-disclosure was requested by Satyam or the paid valuation consultant.

SR Batliboi and Associates, an audit firm for Maytas Infra, is believed to have conducted a valuation but Mint couldn’t ascertain if that valuation was the one relied upon by Satyam or what was the value that may have been put in that valuation on Maytas assets.

Ali Nyaz, a partner at Batliboi, couldn’t be reached for comments and audit and consulting firm Ernst and Young, which counts Batliboi as a partner firm, flatly denied that Batliboi was involved in this saga.

One corporate governance expert said it is unlikely that an auditor was also providing consulting services. “After the enactment of Sarbanes Oxley law in the US, audit firms typically do not take on consultancy assignments on behalf of the same client," said Akil Hirani, managing partner with Mumbai-based legal consultancy Majumudar and Co.

Sarbanes Oxley law is a US federal legislation enacted in 2002 in response to several corporate and accounting scandals. The legislation establishes enhanced standards for all US-listed public company boards, management and accounting firms and applies to Satyam because of its listing there.

Satyam director Prasad told Mint he had suggested a different valuation criteria based on government notified prices of lands owned by Maytas Properties at that same 16 December board meeting.

“I suggested at the board meeting that the valuation be done based on actuals for completed projects (at Maytas Properties), in alignment with current market realizations for work in progress and based on government notified prices for land awaiting development," Prasad insisted. Asked whether he had expected the company management to revert to the board with a revised valuation for Maytas Properties based on the suggestion, Prasad said, “...I will insist that the company do that, as an independent director."

On the evening of 16 December, in a notice to the Bombay Stock Exchange, Satyam wrote that its nine-member board had approved the proposed acquisition, a decision Vadlamani and chief operating officer Ram Mynampati described as unanimous in an interview the next day.

But Prasad said he was under the impression that his suggestion on a different valuation method had been accepted by the board.

“None of the board members opposed my suggestion, so as per norms it is taken as approved," he told Mint.

Raising significant doubts about Satyam’s public posturing on the deal so far, Prasad added that the board had also insisted that as and when the management came back to the board with a revised valuation for Maytas Properties and “if it is significantly higher than the valuation based on the criteria the board suggested (by him), then full and proper justification need to be given to the satisfaction of the board".

Despite this assertion that the board had not give a final sign-off, in its BSE filing, Satyam had noted: “The acquisition of Maytas Properties would be immediate."

In his first conversation with Mint, around noon on Monday, Prasad insisted that the Satyam board’s permission was only for an “exploration of the possibilities" of an acquisition and not for an immediate acquisition.

In a subsequent call a few hours later, Prasad corrected his first assertion saying, an “in-principle approval for the acquisition proposal" was indeed given by the board.

Emails sent and calls made to a third independent board member, C. Rammohan Rao, who is dean of the Indian School of Business, weren’t returned.