Satyam bid for Maytas draws brickbats (Lead)

December 17th, 2008 - 12:15 am ICT by IANS  

Bangalore, Dec 16 (IANS) India’s fourth largest IT bellwether Satyam Computer Services late Tuesday drew a barrage of criticism after it announced a decision to spend $1.6 billion (Rs.79.2 billion) to buy real estate and infrastructure firms run by the two sons of its founder-chairman B. Ramalinga Raju.In a hurriedly convened conference call, investors and analysts questioned the move by the Hyderabad-based software exporter to pay large sums to acquire Maytas Properties and Maytas Infra linked to Raju and raised concerns about corporate governance at Satyam and its credibility in the eyes of clients and investors.

Wall Street made its displeasure known by pummeling the Satyam stock, which lost over 50 percent of its value on the New York Stock Exchange (NYSE) to $5.71 just over an hour after the opening bell early Tuesday.

Ramalinga Raju, however, justified the decision saying it was part of a “good diversification strategy” and that it was only “incidental” that the target companies were controlled by members of his family.

Satyam chief finance officer V. Srinivas would only say the valuation of the real estate company was undertaken by one of the “big four” auditing firms but declined to name which one.

The Rs.81 billion Satyam had cash and cash equivalents of Rs.53.12 billion at the end of second quarter (July-September) this fiscal.

Investors have also raised concerns over how Satyam would fund the proposed acquisition and its impact on its IT business.

Earlier, in a notification to the stock exchanges, Satyam said it would spend $1.3 billion (Rs.64.35 billion) to buy a 100 percent stake in real estate firm Maytas Properties and $300 million (Rs.14.85 billion) for a 51 percent stake in Maytas Infra.

The Hyderabad-based Maytas Properties is run by Rama Raju, the younger son of the Satyam founder, and Maytas Infrastructure by Teja Raju, the elder son.

“The acquisition of Maytas Properties will be immediate, while that of Maytas Infra will be in two phases. In the first phase 31 percent will be bought from promoters at Rs.475 per share and the remaining 20 percent from the public through an open offer to the investors of the listed firm at Rs.525 per share,” the company said in a notification.

Ramalinga Raju said the acquisitions would pave the way for accelerated growth in new geographies and market segments such as transportation, energy and infrastructure sectors for the core IT business.

“The buyout will de-risk the core business by bootstrapping a new business vertical in infrastructure. This market segment can mitigate the risks attributed to developed markets and traditional verticals that are likely to be impacted by the recessionary economy,” Ramalinga Raju said in a statement later.

Maytas Properties is a scale player in development of urban space infrastructure such as integrated townships, special economic zones, hospitality, retail and entertainment spaces in tier I and II cities across India.

The 23-year-old Maytas Infra is engaged in the business of infrastructure construction and asset development spanning core areas of economic growth such as highways, metro/railways, ports, transport management systems, airports, power, oil and gas, irrigation and water treatment.

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