IBM leads race for Satyam buy

Global IT giant IBM is understood to be the front-runner to acquire Satyam Computer Solutions, a company it named as one of its main competitors in a filing to the New York Stock Exchange in February.

The US major, said sources close to the developments, has begun discussions with Satyam's government-nominated board and expressed its desire to acquire a majority stake in the company. A team of investment bankers and lawyers from the US and Europe has been brought in to assess the size of the deal and the risks associated with it. The company is also understood to have conducted an initial due diligence on some of Satyam's major customers.

A week ago, Minister of Corporate Affairs P C Gupta said the open bids would not be restricted to Indian players. IBM was named one of the hostile bidders for Satyam by promoter Ramalinga Raju at the company’s December 16 board meeting.

Other prominent players in the race are Larsen & Toubro (L&T), which owns 12 per cent in Satyam, and the B K Modi- owned Spice group.

The government-nominated board is expected to invite bids for a 31 per cent stake in the company, but is likely to assure the successful bidder 51 per cent even if it fails to get the additional mandatory 20 per cent from the open offer.

When contacted, a company spokesperson said: "IBM does not comment on rumours and speculation."

If IBM wins the race to acquire Satyam, it will become the largest IT services player in India, with a combined employee strength of over 125,000 people (more than current leader Tata Consultancy Services).

Analysts said IBM will benefit significantly by acquiring Satyam because the Hyderabad-based company has a low-cost structure that can give IBM the leverage to compete with Indian IT service providers.

“Larger companies have better merger and acquisition (M&A) experience, strong client relationships, and a very strong understanding of the IT business,” said Sudin Apte, senior analyst, Forrester.

Meanwhile, the minimum net worth for the bidders is expected to be upward of Rs 2,000 crore. The bid-pack, said sources, will be given to potential suitors once the government and the regulators clear the document.