Wednesday, April 15, 2009

Satyam to Tech Mahindra's Venturbay Consultants, Complete review

Indian IT Industry got a fierce setback when Satyam Chairman, Mr. Ramalinga Raju, opened up his original documents and their values leading to the "Biggest Fraud in Indian Corporate Inc.".

Raju admitted that the financial statements of the company were cooked up from last 10 years.

Confession Letter of Mr. Raju.

On 6th January, Mr. Raju made a shocking confession that he had fudged accounts to the tune of over Rs. 7,100 crore.

On the same day, the Satyam’s stock crashed down by 70 percent to Rs 52 from Wednesday’s high of Rs 188.70. It had a client list that boasted of Fortune 500 companies.

The chairman’s acceptance about the fraud in balance sheet puts question mark over the corporate practices of companies in India. He states that Satyam’s balance sheet as on Sep 30, 2008, carries an inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books). Further, it carries an accrued interest of Rs 376 crore which is non-existent.

The PricewaterhouseCoopers was auditor of the company. It also poses a big question over the credibility of auditors.

As the bidding for Satyam enters the last lap, bidders have a few more hurdles to clear before the bids are admitted.

Before submitting the bids, bidders will have to waive the right to legal recourse in case the board decides to reject their bids. The bidder will have to prove its financial ability to bring in the total acquisition funds (TAF) within four days of winning.

The final bidders will have to furnish additional two irrevocable and unconditional performance bank guarantee of Rs 5 crore and Rs 100 crore. This will be refunded to all unsuccessful bidders.

Upon completion of the process, the new investor will be locked in for three years.

The various bidders who went on to the final step were
  1. Tech Mahindra - Locked the deal with Rs. 58 per share
  2. L&T - Locked their patrt with Rs. 46.5 per share
  3. Wilbur Ross - LOcked their bid at just Rs. 20 per share
  4. Cognizant - Pulled off.
Spice Corp, IBM and iGate were among those confirmed names that dropped out of the race after showing an interest in the company. iGate decided to drop out of the race for Satyam after concerns on falling revenues and not enough clarity on customers and margins. Spice Corp claimed that the bidding process lacked transparency and pulled out of the race.

The Satyam board has selected Venturbay Consultants, a subsidiary of Tech Mahindra as the highest bidder to acquire a controlling stake in the company, subject to the approval of the Company Law Board.

Tech Mahindra would pay Rs 1,900 cr within the next four days for the 31 per cent stake in Satyam and Satyam would operate as a special purpose vehicle until Tech Mahindra raises its stake to 51%.

Tech Mahindra would infuse Rs 1756 cr ($351 mn) based on the exchange rate of 50/$.

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