SATYAM ACQUISITION BY TECH MAHINDRA

Tech Mahindra has been successful in bidding for Satyam Computers, wherein, it will be acquiring 31% stake at Rs. 58 per share, in Satyam, by way of preferential allotment followed by open offer for additional 20% at the same rate, from the shareholders of Satyam.

Open offer is likely to be for 19.54 crore shares of Satyam, while its present paid up equity stands at 67.40 crore shares. Of this, ADR holding is at 13.07 crore shares while L&T is holding 8.08 crore shares. Since shares held by L&T are not eligible to participate in the open offer, as it has a lock in of 6 months, there is expectation that even ADR holders may not see active participation. Due to this, Acceptance Ratio is likely to be 50%, viz. one share is likely to get accepted out of two shares tendered.

Coming on to the strategy for the Satyam shareholders, the performance of the company is bound to increase in FY 10 with Tech Mahindra taking charge and share price, which is now ruling at Rs. 48 will rise in due course of time. But, benefits of this rise would be seen more in the share price of Tech Mahindra, as, in its consolidated results, 51% of Satyam’s PAT would get added to its bottomline, while 100% of Satyam turnover in its topline. So it is advised to move to Tech Mahindra from Satyam, now, without participating in the open offer.

If we presume that for FY 10, Satyam is likely to have a topline of Rs.7,000 crores with PAT of Rs.700 crores, it would translate into an EPS of Rs.7. As Satyam will have outstanding number of shares at 97.67 crore, after preferential allotment. In this situation, if you expect share price of Satyam to rule at Rs.42, post open offer, this translates into PE multiple of 6 times.

Tech Mahindra had posted a topline of Rs.3,407 crores for nine months ending 31-12-08 while its PAT is placed at Rs.784 crores resulting in an EPS of Rs.64.FY 09 EPS is Likely to be close to Rs.75 and share price, ruling at Rs.372 is translating into a PE of close to 5 times.

Tech Mahindra would be requiring close to Rs.2,900 crores for acquiring 51% stake in Satyam. This is expected to get mobilized with internal accruals of Rs.900 crores and debt of Rs.2,000 crores. Tech Mahindra at present is a debt free company with present net worth of Rs.1,800 crores. The company has an annual cash generation of close to Rs.700 crores, after paying dividend on the equity shares. Hence an Additional interest burden of Rs.300 crores would get charged to the consolidated results of Tech Mahindra. Since it will be entitled for 51% PAT of Satyam, which is likely to be Rs.350 crores, the acquisition will be EPS accretive for Tech Mahindra. Once, this debt of Rs.2,000 crores would get paid in next two years, Consolidated PAT would sharply jump.

Conversely, if Satyam is not able to post an EPS of Rs.7, share price may not be able to hold Rs.40 levels. In that case, we may also not see any rise in share price of Tech Mahindra and it may remain Static at Rs.370 levels. So even in this case, it will be better for Satyam shareholders to move to Tech Mahindra right now without waiting to participate in the open Offer.

By S P Tulsian Source: www.premiuminvestments.in

Satyam Computer

The good news for the day was Satyam getting the green signal from SEBI for inducting a strategic partner through sale of 51% m via a global bidding process. Expression of Interest from qualified investors will be invited shortly.

A quick glance at the fine print of the guidelines
Ø Satyam will issue fresh equity of 31% to the investor. Remaining 20% would be made through an open offer at the same share price as the price paid by the investor for the subscription.
Ø Second preferential allotment allowed if bidder fails in first attempt to acquire 51% but this would not be thro’ an open offer.
Ø The investor would have a lock-in of 3 years from the date of the acquisition, though there is no restriction on subscription to additional equity shares.
Ø Qualified investors who bid should have total net assets in excess of US$150 million.
Ø SEBI has exempted Satyam from the normal rules.
Ø International bidding process to be followed.
Ø The process of selection of a strategic investor will be overseen by a retired judge of the Supreme Court or former Chief Justice of India.
This finally comes as a relief to the various suitors of Satyam who have been all along asking for a 515 stake sale. Front runners in the race to acquire Satyam are L&T, Tech Mahindra, B.K.Modi’s Spice group and the latest is global giant IBM.
But this does not mean that companies would now rush to buy the 51% stake. The bidders now want more financial information from the company. Without knowing the real story, which the restated financial of third quarter ended 31st Dec 2008 could most probably throw some light on, how can one really place a worth? L&T and Tech Mahindra have gone on record to say that they have not yet decided on whether to bid or not. They say that unless the company provides complete information about its financial situation, they do not plan to make a move, which makes perfect economic sense.
Then there is the question of the US Class Action Suits, which is estimated to be anywhere between Rs.2,000 – Rs.4,000 crore. However, one legal opinion is that this may not arise at all on Satyam, as the company itself is the biggest victim of fraud committed by its erstwhile promoter Raju, by siphoning off over Rs.5,000 crore, from the kitty of the company. One section also says that it now looks almost confirmed that this amount of Rs.5,000 crore, to a great extent, has been used to create assets of Maytas Infra and Maytas Properties, and hence it is likely to get recovered, maybe, in the next couple of years. So any recovery from this can be used to meet U.S. Class Action Suit liability, and hence on net basis, it may result in nil liability.Since the stake sale of Satyam is being made by preferential issue route, it may see a bidding of upto Rs.100 per share. A potential acquirer, may have to shell out another Rs.1,800 crore to make an open offer for 20% shares, being 18.20 crore of the expanded equity of 91 crore shares, at about Rs.100 per share. So a potential acquirer must have financial ability to contribute close to Rs.4,000 crore for acquiring an effective control of Satyam.

Source: sptulsian.com (By Tulsian)

Satyam Computers-

B. Ramalinga Raju, Chairman of Satyam Computers, after having made a confession, by his letter dated 07-01-09, leaves one question, still unanswered, inspite of the company’s press conference, as also after an initial probe by Registrar of Companies and SEBI, whether Rs.5,000 crore exist in the company’s books or not?
On one hand, we have audited balance sheet of the company, as at 31-03-08, which states that the company had a cash and bank balances of Rs.4,502.42 crores as also accrued interest on fixed deposits, of Rs.272.50 crores. Details of Rs.201.19 crores held by the company, with non-scheduled banks, have been given in the balance sheet, which runs in 58 branches of various foreign banks, spread across the globe, Details of balances held with various scheduled banks, are not required to be given. However, Rs.965.70 crores were lying in current account and Rs.3,325.24 crores in Deposit accounts of various scheduled banks, as at 31-03-08. Incidentally, these scheduled banks had a balance of Rs.424.29 crores in current account and Rs.3,371.26 crores in deposit account, as at 31-03-07. Scheduled Bankers of the company were only three banks, which are Bank of Baroda, HDFC Bank, and ICICI Bank.
It may be noted that the balance sheet of the company, as at 31-03-08 and as at 31-03-07 have been audited by the Price Waterhouse (PWC) and signed by Srinivas Talluri, Partner of PWC bearing membership number 29864.
As a part of audit process, it is an elementary and mandatory work, to check the cash and bank balances, as also to see bank reconciliation statements, having prepared by the client, by the Auditors. In this case, list of 54 banks have been given, for balances, held by the company, with non-scheduled banks. Similarly, a list must have been prepared, (which must be in possession of he Auditors and Accounts Department of Satyam) of the balances, held in all accounts, by the company, with scheduled banks.
We doubt that an auditor, like standing of PWC, must not have asked or verified or collated the bank balance details? If really they have not, they have no right to exist and partner of PWC, Srinivas Talluri should be held more guilty than Ramalinga Raju.
But if we presume, the bank balances of Rs.4,502 crores, were existing on 31-03-08 (Rs.3,991 crores on 31-03-07), which is most likely, than it has been siphoned off, embezzled by Raju between 01-04-08 to 07-01-09.
However, Raju, by his letter dated 07-01-09 had stated that cash and bank balances are inflated by Rs.5.040 crores. Even the acting CEO of Satyam, Ram Mynampati (Earlier President & Whole Time Director) could not confirm whether this balance exists or not, as at 31-03-08 and as of date.
However, we all are trying to believe the statement of Raju, that no cash and bank balance exists, How can we believe Raju, who has proved to be a fraud and why don’t we verify its authenticity, with the bankers of the company?
It is very essential to know or track, upto which point of time, these bank balances were existing. This can be verified by taking these steps:--
1) Call for audit working papers from PWC and ask for break-up of deposits held with scheduled banks, as at 31-03-08 and as at 31-03-07. This will be a limited enquiry, which can very well be initiated by an authority and would not be held as breach of client confidentiality agreement of PWC.
2) Call for similar details from accounts department of Satyam. Even a junior accountant would be able to give this or same must be existing in working paper files, in soft and hard formats, with Satyam.
3) On getting these details, go and check with those banks, whether balances as stated therein, were existing at any point of time?
If these balances were never existing at any point of time, PWC is more responsible then even Raju and held them responsible. If these balances were existing at some point of time, track them till they got embezzled, siphoned off or wiped off.
It may be possible, that after 31-03-08, Raju may have pledged Deposit receipts with respective scheduled banks to draw overdraft against those deposit receipts for the benefit of his personal accounts or for his associate companies. If it has happened, such scheduled banks should be held responsible along with Raju and not PWC.
If we are able to track the point, where, Rs.5,000 crores of company’s bank balances have been embezzled, it would be easy and possible to track the operating performance, profitability ratios etc. of Satyam, very easily.
It may also be noted that as per Raju’s confession, he has stated that liabilities are understated to the extent of Rs.1,230 crores. This means, either expenses of Satyam were not booked in the books of the company or they were paid and discharged by Raju from his personal sources, so as to keep profit of Satyam inflated.
Also, overstated debtors, by Rs.490 crores, as per confession of Raju, largely represents, overbilling of Q2, to the extent of Rs.588 crores. This can easily get checked, as scrutinisation of one quarter billing is possible.
Similarly, accrued interest of Rs.376 crores, is non-existent, as alleged by Raju, could happen only if Deposits were not existing with the scheduled banks as at 31-03-08 and 31-03-07. In that situation, if deposits were not existing on those dates, PWC should be held responsible with Raju.
Hence, to ascertain the truth of the alleged overstatement of profits of Satyam, by Raju, it is necessary to track this short route of bank balance transactions, by which truth will come out on surface.
So why it is taking so long, by all the investigation agencies to do so? Why no statement is being given by anyone on the existence of bank balances? Whether they were existing as at 31-03-08 and as of date?
The total networth of Satyam is estimated to be Rs.8,000 crores, of which about 60% is represented by cash & bank balances. So if these bank balances were void ab initio or were non-existent, from day one, it is a great lapse of audit procedures as also lapses on part of board members, audit committee members and executives of the company.
Alternatively, if it vanished after 31-03-08, story will be totally different, and bankers of Satyam would be responsible and then, Satyam can also be held to be having great value.

Source: sptulsian.com (By S P Tulsian)