Stage is all set for stake sale in Satyam Computers, for which, financial bids will be submitted by the potential acquirers by Monday, 13th April. This date was earlier at 9th April, which got extended after L&T and Tech Mahindra sought additional information, to enable them to prepare the bids.
There has been speculation that IBM has pulled out of the race, on fears of 13 US Class Action Suits, filed against Satyam in courts by ADR holders. IBM which had stated Infosys, Wipro and Satyam as its main competitors in its Annual Report, which was filed with NYSE in Feb. 09, finds Satyam , a fit company to acquire, which they have been eyeing for quite sometime. Earlier, Raju had stated that Satyam is a hostile take-over target of IBM, due to low promoter stake and hence the Satyam needs to utilise its idle cash of Rs. 5,000 crores lying in its books. Even IBM had carried out due diligence inspite of knowing the existence of 13 suits. Hence, it is hard to believe that IBM opts out of race , which otherwise strategically fits in.
Earlier, iGate, Hinduja Group and B K Modi controlled Spice Group opted out of the race, though, Spice Group maintains that it could re-enter the bidding, if its conditions for an open auction and transparent process are met.
As of date, there are 4 serious bidders in the fray and they are L&T, Tech Mahindra, Cognizant Technologies and P E Firm W L Ross. It needs to be understood that it is not the number but quality of the potential acquirers, which will decide the valuations of Satyam. Of the 4 bidders, if the name of IBM also gets added, it will result in aggressive bids by them.
It is learnt that Satyam is owning close to 75 lakh Sq.Feet of constructed area across the globe with huge chunk of land in Hyderabad, Bangalore, Chennai, Madurai, Vizag and other parts of the country. The present value of all these real estates is pegged at close to Rs. 4,000 crores. Apart from this, topline of close to US $2 Billion, also give it a good valuation on intangible front and can be taken at Rs. 5,000 crores, if a multiple of 0.5 is given to it , against the industry average of 2.5 to 3 times.
US Class Action Suit liabilities, which were estimated in extreme case scenario at US$800 million (Rs. 4,000 crores) can get largely offset by the tangibles and intangibles of Satyam. Also, prospects of recovering funds of Satyam, having diverted to Maytas also exist. So all this can result in a valuation of Rs.60- Rs.72 per share. Also, if two top acquirers are in a 10% band, open bidding can take it to upper range of Rs. 72. The final bidder, will give direction to the share price and if IBM or L&T are in this, share price can move closer to the bidding price, as many investors may not be keen to tender it in the open offer.
It is learnt that bids will be received by 10 a.m. on 13th April and would be opened on that day itself. Since market is closed on 14th April, we will see share price responding to the bids on 15th April.
In the given circumstances, we feel that bids are likely to be aggressive and share price is likely to react upward and positive. In this situation, if one remains invested upto 15th April in the stock would stand to gain.
