Satyam’s valuation secrets

Satyam’s valuation secrets

Who valued the two Maytas firms that Satyam Computer Services Ltd wanted to buy out for $1.6 billion, in subversion of corporate governance standards?

Satyam’s top managers have staunchly and repeatedly hidden behind a non-disclosure agreement they say they have with a “Big Four" firm—a term used to describe the top four players in the consultancy and audit business—that disallows them to name the valuer.

Satyam’s stance borders on the nonsensical. But, if the management is still sceptical, let us spell out at least two reasons why the company’s management should come out with a full disclosure on who did the valuation and how it was done.

First, how can two publicly listed firms—in addition to the India listings of Satyam and Maytas Infra Ltd, the tech vendor’s shares are traded on the New York Stock Exchange—not make public information on a topic that clearly has an impact on investor interest?

Satyam’s shareholders have seen nearly 30% of their company’s value vanish into ether this past week and may see a further erosion as their company becomes an easy target for a class action suit in the US.

By making public the name of the valuer and methodology of valuation, Satyam chairman Ramalinga Raju and his lieutenants can restore some confidence in investors backing the tech vendor. By not doing so, they run the risk of further running into ground that shaky confidence.

Next, while defending its decision that could potentially have wiped the company’s cash reserves bare, the Satyam management argued that the per-acre valuation of the realty firm Maytas Properties Pvt. Ltd was at a fraction of the market leaders such as DLF Ltd. Independent directors, too, have insisted that Satyam, ostensibly seeking to diversify from a software services-focused business, was getting a good deal in the two proposed acquisitions. What was the basis of that valuation? Was there indeed a discount to other realty assets?

The answers to these questions are critical to understanding not just how Satyam valued the firms owned by chairman Raju’s family, and will establish for all time if the management and the board were above board in the intent behind their poorly thought out decision last Tuesday. So, come clean.

Does the Maytas controversy once again point to poor valuation standards for real estate? Tell us at