Satyam's big guns may run out of ammunition

18 Dec 2008, 0413 hrs IST, Jessica Mehroin Irani & Dev Chatterjee, ET Bureau

MUMBAI: Satyam’s abortive bid to acquire Maytas Properties and Maytas Infrastructure has given rise to some uncomfortable questions on the actions of the Satyam board. As it happens, some of the independent directors on that board have storied reputations which are likely to take a knock in the wake of the bizarre episode. Despite attempts by this paper, some of the big guns on the board were not reachable at the time of going to the press. Vinod K Dham, famously known as `father of Pentium’ and an ex-Intel employee, when contacted by ET in the United States first refused to talk, saying that it was midnight in the US. Early morning, calls were forwarded to an answering machine. ET’s detailed mail to Krishna G Palepu, a famous Harvard professor, also remained unanswered at the time of going to press. Mr Palepu and Mr Dham attended the board meeting via conference calls as both were in the US Tuesday evening. The board was again consulted over the telephone to revoke the decision early Wednesday. The board was alerted late on Tuesday after investors, in the course of the now-famous conference, made it clear what they thought about the decision. The dean of the Indian School of Business, Mr Mendu Rammohan Rao, chaired the infamous meeting whose decisions, and their rapid reversal in the wake of shareholder fury, is now part of India’s corporate history. Mr Rao did not respond to repeated calls to his mobile by ET. Other directors were more forthcoming, and defended the board’s decisions. Two independent directors on the board of Satyam Computers defended the Maytas acquisition, saying it was in the best interests of all shareholders as margins from the infotech business was falling whereas they saw a huge upside in the infrastructure and realty sector. “Even your uncle will not sell you the land at the price Maytas was selling it to Satyam,” said T R Prasad, an independent director on the board of Satyam Computers and former cabinet secretary of India. He spoke to ET from Visakhapatnam. The land was valued at Rs 1 crore an acre, Mr Prasad said, thus giving a valuation of Rs 6,500 crore for the entire 6,500 acre owned by Maytas. E&Y, Mr Prasad said, had given a report on Maytas which was considered by the board. However, in a statement to ET, E&Y denied doing any work for Satyam in relation to the deal. An E&Y spokesperson said that the firm had “no connection of any kind with the transaction”. “We used common sense in this deal as prospects for infotech industry is not looking very bright and we think that realty prices have now bottomed out,” Mr Prasad said. “Infrastructure has great potential and Maytas Infrastructure could be compared to tomorrow’s L&T or Punj Lloyd,” he said. Mr Prasad said all directors were unanimous in their decision to acquire Maytas Infrastructure and Maytas Properties and there was no dissent note. A Satyam spokeswoman said that Ramalinga Raju and Rama Raju, the promoters of the IT firm, were not present at the meeting when the other seven directors were voting on the deal. V S Raju, another independent board director and Mr Prasad, told ET that the two promoters did not take part in the voting. The deal wasn’t sprung on the board of directors as they had been informed of the meeting’s agenda earlier. Mr Raju, a former director of IIT-Delhi and currently the chairman of the Naval Research Board, Defence Research and Development Organisation (DRDO), said that it was a well considered decision and that the agenda for the meeting had been circulated ‘well in advance’. “It (decision) was done with all good intentions. We were surprised the market did not see it in the same light as us. We expected a normal or flat response, but not this,” Mr Raju said. Mr Raju was in agreement with Mr Prasad on the falling margins of Satyam. It was difficult for Satyam to reach its targets with its core IT business and hence they believed the acquisition would have helped them achieve those targets in the long-term, Mr Raju added. Mr Prasad said the company’s board had done its due diligence properly and adds the valuation looks reasonable considering the home prices in Hyderabad are at around Rs 3,500 to 4,000 per square foot while Maytas’ cost of building homes will be around a maximum of Rs 1,500 a square feet. “I still think it was a good deal for Satyam’s acquisition cost as land prices at Rs 300 a square feet was based on the state government’s notified prices,” Mr Prasad said. On the conflict of interest, Mr Prasad said the board gave precedence to common sense and business potential rather than looking at promoter’s family connections. Bankers pointed that valuers normally also look at the cash flow and the earnings report. On the question of the land value, normally a report from a real estate consultant is used for decision-making. Though there were reports that another bank was appointed for a fairness valuation, this could not be confirmed. The fairness valuation informs the board if the proposed transaction is fair to the shareholders.