Satyam: Incredible!

By entering into related-party deals without shareholder approval, the firm has done irreparable damage to India Inc's reputation.

Minority shareholders of Satyam Computer have every reason to feel short-changed. Without so much as by your leave, the management has decided to enter into related –party transactions using the company balance sheet.

Satyam will spend $1.3 billion to acquire the entire stake in Maytas Properties, an unlisted firm owned by the promoters of Satyam. It also plans to buy 51 per cent in Maytas Infrastructure, a listed firm in which the promoters of Satyam own 36 per cent, for around $300 million.

The Hyderabad-based tech major’s total disregard for corporate governance and shareholders is shocking -- the company does not plan to take the proposal to minority shareholders. Remember that Mr. Ramalinga Raju himself has a very small stake in the company .

It’s outrageous that the management is enriching the promoters of Satyam at the cost of other shareholders. Indeed, if the company believed that any acquisition in the IT space would not have made sense at this juncture as it would carry the same risks as the existing business, it could have returned the money to shareholders, done a buyback or simply left it on the balance sheet.

The management has tried to sell the India infrastructure and real estate stories; sure they may be opportunities but this is hardly the way to go about playing the property theme. It would have been more appropriate to take the shareholders into confidence especially when it is spending $1.3 billion (Rs 6,200 crore) for a real estate company even if it owns 245 million sq ft of land.

The management points out that DLF’s market capitalisation is Rs 47,250 crore and that the company has approximately 750 million sq ft of land. But the two can hardly be compared---DLF has an established track record and brand. For that matter, the market capitalisation of Unitech, which has close to 650 million sq ft of land, is Rs 6,234 crore.

The management is valuing Maytas Infrastructure, which has a market capitalisation of Rs 2,856 crore and has bagged orders worth $5.7 billion, at Rs 2,740 crore in line with SEBI guidelines. However, the deal will be earnings dilutive. It won’t be surprising if shareholders block the deal---Templeton has indicated that it will go to any lengths to stop this transaction from going through. The move is bound to shock foreign investors and will badly hurt India Inc’s reputation.