But a few other prominent Indian business groups and companies such as the Hinduja Group and Tech Mahindra, which had initially shown interest, are still undecided. The Hinduja Group, one of the large diversified business groups, as well as IT firm Tech Mahindra may decide to stay out because of lack of adequate information.
A Reuters report from New York said that IBM may not bid for Satyam. If IBM does not put in a bid it could be because the company already has a significant presence off-shore.
In contrast, HP, which acquired EDS in 2008 to compete more effectively with rival IBM in the global software services market, could be eyeing Satyam to create a much bigger offshore delivery business. CSC could also be interested.
The two global giants are currently evaluating possibilities and it is not known if they will submit a formal offer. “Acquisitions have been a key element of CSC’s growth strategy. However, as a matter of policy, we decline to comment on rumour or speculation regarding any specific activities,” a CSC India spokeswoman had told ET recently.
Bidders need to submit their interest by March 12 (Thursday) and follow it up with a detailed expression of interest (EoI) along with the proof on availability of funds of at least Rs 1,500 crore ($ 290 million) by March 20.
There will, however, be no requirement to have a minimum floor price, which is otherwise mandatory under Sebi regulations for an initial subscription. The norm has been waived, since there is no clarity on the financials and legal liabilities of the software firm, after its disgraced founder admitted to perpetrating a Rs 7,000-crore financial fraud.
The qualified bidders will be shortlisted and given access to certain business, financial and legal diligence materials relating to the company. Information will be provided only if they have executed a non-disclosure and non-
solicitation agreement, a stand-still agreement and a ‘no-claims’ undertaking, said a company statement on Monday.
After completion of the due diligence process and execution of the pre-financial bid documents, all shortlisted bidders will be asked to submit their financial bids. Based on an evaluation of the bids, the company will select the successful bidder who, in turn, will have four days to deposit the entire subscription amount and the requisite funds for the public offer in an escrow account.
The new owner will have to comply with stringent conditionalities meant to protect the interests of key existing employees and keep the assets
of the firm intact. “The owner of Satyam will have to give an undertaking to retain key employees of the firm who are strategic to business operations. Members of the top management team have stood by the company during the crisis.
While it is normal for a new owner to bring in his own team, the board is understood to have stipulated retention of key employees as one of the conditionalities,” said a senior company official. Besides, the new owner should not indulge in asset stripping, the official maintained.
According to a Gartner study last year, IBM leads the global IT services market with around 7.2% of the market, followed by HP-EDS with around 5.3% of the market. HP overtook Accenture after it acquired EDS. The global market for computer services is estimated to be around $748 billion.
Even after the EDS acquisition, which brought over 20,000 MphasiS employees to HP Services India, HP trails IBM in terms of offshore strength. IBM has over 73,000 professionals in India, with Accenture having around 37,000 software professionals in the country.
CSC reported revenues of $17.3 billion during the year ended October 2008, and has around 91,000 employees across the globe. But many MNCs are not sure if they want to go ahead because of ambiguities surrounding Satyam’s financials, a US-based analyst tracking these companies said.
“We will take a call based on the availability of information. We will look at the return on investment and return on capital employed, and what will be the free cash flow generation capability of Satyam post-acquisition,” said Prabal Banerji, group president finance & group CFO, Hinduja Group.
Tech Mahindra, which had also shown interest in participating in the bid process either on its own or in partnership with a private equity firm, said the real question was not about submitting the EoI. “The bidding for Satyam will depend on the quality of information provided,” said a Tech Mahindra official.
L&T, which has a 12% stake in Satyam, said it was likely to submit the EoI for Satyam by March 12, the last date to register interest and submit proof of availability of funds. “However, any decision on the bid will be taken after examining the quality and quantity of information made available to L&T,” YM Deosthalee, CFO, L&T, told ET.
Spice Group chairman BK Modi said the group would also submit the EoI online by March 12. “We will submit our bid by Thursday. Liquidity is not a concern at all. We have deep pockets and funds are lying in bank,” he said. Mr Modi had sold his 40.8% stake in Spice Communications for Rs 2,176 crore to AV Birla group’s Idea Cellular in June last year. Additionally, he received a non-compete fee of Rs 544 crore from the company.
“We need to have clear visibility regarding the financial contours of the company, crystallised on and off balance sheet liabilities — both from financial and legal angles. Only after this, an enterprise value and equity valuation can be arrived at to put a price on the 51% stake of Satyam on the table,” said Mr Banerji, reflecting the concern of some of the potential bidders.
Simply put, the response to bids would depend on one crucial factor, the quality of information provided to potential suitors. “The board should provide more clarity on legal and other liabilities for suitors, given that any new owner would have to factor in these liabilities,” said an analyst.
A strategic investor, who acquires 31% of the stake, could infuse Rs 1,212 crore of capital, if the price for the preferential allotment is Rs 40 per share. If shareholders subscribe to the 20% open offer fully, the investor would have to pay them around Rs 780 crore.
The process for selecting a bidder will be overseen by a former Chief Justice of India or former Supreme Court judge appointed by the company. Satyam scrip rose 6.65% on Monday to close at Rs 48.75 per share on BSE.
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