Satyam saved?

Tech Mahindra has been announced as the winner in the race for a majority share of Satyam - but does the bale out mean a safe future for Satyam, and for its new, smaller, owner?

Tags: Satyam Computer Services
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By  Mark Sutton Published  April 14, 2009

Tech Mahindra has been announced as the winner in the race for a majority share of Satyam - but does the bale out mean a safe future for Satyam, and for its new, smaller, owner?

On the plus side, $580 million is seen as a pretty good price for Satyam based on the size of its business. The buy will give Tech Mahindra inroads into the IT market in general, building on its base in telecoms, and will also give it a much greater presence in the US.

The deal has the usual perils of any big M&A activity, mainly down to whether the Tech Mahindra's management can handle integrating with a larger partner, and whether they can maintain the 'Satyamite' culture and keep key staff to manage businesses that are somewhat removed from Tech Mahindra's own core businesses.

But on top of that, there are the unknowns that could yet prove to be the true hurdles. Satyam's operating expenses are high, and Tech Mahindra will have to stump up for those fairly soon. Satyam may have been sold at a good price, but Tech Mahindra has still had to raise around $300m in loans and other finance to pay for its 51% stake, which could prove to be risky.

Satyam is also facing over a dozen civil suits related to the fraud, with legal liabilities estimated at around $200m by some counts. The new management may be able to stop the trickle of customers leaving Satyam, but even then revenues are expected to be down by over $1 billion for the year.

On top of that, is the real unknown - the size of the hole at the centre of Satyam's accounting. While ex-chairman Ramalinga Raju may have confessed to inflating revenues by $1 billion, investigators now believe the real sum could be twice that.

Indian news agency PTI drew the comparison that has been made over and over since the fraud came to light, that Satyam was 'India's Enron', but with announcement of the Tech Mahindra deal drew one important distinction - it was India's Enron, but without the job losses. Given the potential pitfalls that the new management still have to navigate, and the huge sums of money involved, it may be a bit too early to declare that Satyam has been entirely saved by the deal.

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