IBM, Fidelity, KKR throw hat into Satyam ring

MUMBAI: IBM Global Services, one of the world’s largest IT services firms, Fidelity Investments and buyout giant KKR are among the

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multinationals that have shown interest in buying Satyam Computer Services, people close to the development said.

IBM registered its interest through a law firm representing it. The name of the law firm could not be ascertained. ET had reported in its Friday edition that PE firms as well as global IT majors had submitted expressions of interest (EoIs) for Satyam. With this, the total number of contenders for Satyam has gone up to at least eight, making it a closely-pitched fight. The name of another PE titan, TPG, has also cropped up, but there is no confirmation.

Engineering major L&T, the Spice Group and Tech Mahindra have already announced their interest in bidding for the troubled IT firm. The Satyam board, which met on Friday, said all firms that registered their interest would receive a request for proposal. Nearly 130 firms, including a clutch of law firms, have expressed their interest in Satyam. Bidders are expected to put a price tag on Satyam, based on the information made available to them. The law firms are believed to be representing potential clients.


However, there is considerable uncertainty on the financial and legal liabilities of Satyam that has been struggling for survival after its disgraced founder B Ramalinga Raju admitted to perpetrating a Rs 7,000-crore financial fraud. The government later stepped in and appointed a new board that will select a strategic investor to take management control of the firm.

Last week, IBM chief executive Samuel J Palmisano had reportedly told shareholders that the company was taking a different approach in the current global economic slowdown. “We are not looking back, we are looking ahead. We are continuing to invest in R&D, in strategic acquisitions, in growth initiatives — and, most importantly, during these difficult times — in our people,” Mr Palmisano had said.

The entry of IBM, if finally confirmed, could give serious competition to L&T, so far perceived among the strongest and most serious contender. IBM has assets spanning hardware, software and services and a sizeable presence in India, which rivals some of the leading IT exporters in the country. At last count, it had 75,000 employees in the country and was, therefore, thought to be an unlikely bidder for Satyam.

Industry sources said around 2-3 years ago, the tech giant had done a preliminary evaluation of Satyam with the intent to acquire it, although it was not a full-fledged due diligence process. IBM, however, has consistently denied this talk.

“US President Barack Obama’s recent policy to withdraw tax incentives to US companies that outsource work to firms (outside the US) will raise their cost of operations and erode their competitiveness. While IBM’s global operations arm in India may make IBM vulnerable, an acquisition such as Satyam may help them get a low-cost arm to offset such increased costs by clever subcontracting and accounting within the IBM group of companies, rather than deem such cost-arbitrage as outsourcing,” said an IT analyst, who did not wish to be named.

Apart from IBM, close rival Hewlett Packard (HP) is also reported to have put in an EoI, but this could not be confirmed. HP has followed a very acquisitive strategy and last year acquired competitor EDS, through which it now owns majority stake in Indian IT firm, Mphasis.

The entry of Fidelity Investments as a potential buyer also provides an interesting twist to the bid story. After L&T, which holds nearly 12% in Satyam, Fidelity is the second-largest single shareholder with over 10% stake in Satyam. It is possible that Fidelity could be treated on par with PE firms being a financial investor.

Private equity firms, TPG and KKR, may have to partner with a strategic investor to be eligible for bidding. Buyout firm KKR holds a majority stake in Aricent, a software firm focused on the telecom segment. According to the pre-conditions laid out by the Satyam board, PE firms will be allowed to bid for Satyam only in partnership with a strategic investor. The investor need not necessarily have an IT background. Tech Mahindra, for instance, is evaluating the option of tying up with a private equity fund to buy Satyam.

But a senior executive from one of the private equity firms said given the uncertainties in the Satyam deal, PE players were unlikely to seriously consider it. “For a PE firm, this (Satyam) would be an adventurous deal. In a situation like this, I cannot see PE firms as serious bidders. Submission of the EoI does not necessarily mean anything,” he said.

US-based iGate, promoted by former Infosys board member Phaneesh Murthy, cautioned that it could withdraw the EoI, if it was not satisfied with the information provided by the Satyam board.

The next stage in the bidding process is the submission of a detailed EoI along with proof of $290 million cash. This supposed to happen by March 20. Former Chief Justice of India SP Bharucha will oversee the process of selecting the strategic investor for Satyam.