Satyam investors urge merger to counter takeover

By siliconindia   |   Monday, 16 February 2009, 22:33 IST   |    5 Comments
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Bangalore: Problems seem to be unending for Satyam Computer service. After the abortion of Maytas deal and slapping of a bar by World Bank on it, the company is now under the threat of a hostile takeover by a domestic or overseas company, including private equity firms. To counter this, Satyam's management and some of its institutional investors are exploring a merger with another software company. A report appeared in Business Standard, quoting investment banking sources, says that the company is reportedly in talks with Delhi-based HCL Technologies and Bangalore-based MindTree, with HCL seems to be the front-runner. Satyam has been under pressure after institutional shareholders forced it to reverse a decision to invest almost Rs 8,000 crore in two promoter-owned companies mid-December, followed by resignation of four independent directors. The company's share price has fallen 21.3 percent since December 15, the day before the crisis broke. Investment banking sources said a merger of Satyam and HCL would create India's largest software company with a combined market capitalization of Rs 20,200 crore (Satyam: Rs 12,000 crore; HCL: Rs 8,200 crore), which would enhance its valuation. After some institutional investors sold promoters' shares pledged with them to make good margin calls when the stock price started falling, Satyam promoters' stake has come down to little over 5 percent. As a result, several investors think the company is vulnerable because it has cash reserves of over Rs 5,500 crore. The promoters' holding in HCL Technologies, which has completed the acquisition of UK-based Axon for $658 million, is around 67 percent. The merger strategy has been approved by DSP Merrill Lynch, which is advising the Satyam management on a potential takeover threat, says sources. The pressure to merge with another IT firm is building because investors fear that a takeover by a non-IT firm like a private equity firm is unlikely to bring the benefits of synergy.