Are Satyam's troubles over?
Tuesday, April 14, 2009 , Posted by Silent Observer at Tuesday, April 14, 2009
On Monday three months drama over Satyam ended when the bids were open for its 31% stake and open offer to acquire another 20%. Tech Mahindra becomes the fourth largest IT firm with its successful bid of 58 Rs per Share.
Tech Mahindra obviously would face a lot of challenges such as managing an employee base which would be three times its existing workforce of around 25,000 people. At the same time to try and retain key talent in the firm (and contracts) so that they don’t just end up with a shell firm. There are other challenges including Unpaid impending case against Satyam and US class action suits
Another problem would be raising funds for the transaction; Tech Mahindra had cash worth $110 million (around Rs 550 crores) as of December 2008. The firm had reserves and surplus of Rs 1,631 crore as of December 2008, which will not be sufficient to bankroll the transaction.
Now the question arises is the deal is overvalued especially since distressed asset buyer Wilbur Ross priced its bid at Rs 20 per share. Also Cognizant which was bidding jointly with Wilbur Ross backed out at last minute. Also according the reports Satyam Directors were also expecting highest bid between Rs 40-50. Well time will only tell whether the deal is overvalued or not but one thing is for sure that Tech Mahindra has quite a tough road ahead as problems for Satyam is not over yet.
