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Satyam's Share of Adversities

si Team
Monday, January 5, 2009
si Team
The Hyderabad based Satyam, one of the top five flagship Indian IT giants had received a Golden Peacock award from a group of Indian directors for excellence in corporate governance just three months ago. But now the company's tryst with corporate governance seems to have been disastrous to say the least; its board has been in turmoil and its shares have plummeted after a botched attempt few weeks back to buy two infrastructure firms in which the company's management held stakes, sparking concerns about conflicts of interest and a lack of transparency.

Satyam's aborted plan was to take over the group companies Maytas Infra and Matyas Properties at $1.6 billion, in which B. Ramalinga Raju, Chairman, Satyam and his brothers and associates own 35 and 36 percent of stakes respectively. Within few hours an unprecedented shareholders' revolt crashed Satyam's American depository receipts by 55 percent on 16th December on New York Stock Exchange and plunged the stock by 27 percent to Rs 165.50 in mid-session the next day on the Bombay Stock Exchange, which forced the Rajus to abort the proposed plan.

In fact, the incident was followed by the company's Britain-based client Upaid filing an injunction in a U.S. court against Raju and two top officials few days before, alleging that the Maytas bid was an attempt to siphon off surplus money in case Satyam lost a suit it is fighting out with Upaid. The acquisition would have exhausted Satyam's $1.2 billion cash pile up and plunged it into debt to the tune of $400 million to bail out the promoter family and the debt-ridden Maytas companies badly hurt by the realty meltdown.

It was not long before shockers came from the World Bank. The bank banned Satyam from doing any of its projects for next eight years. The decision came after Satyam was caught for Computer Security Compromisation and bribing bank officials. "I want them off the premises now" was the reaction from World Bank President Robert Zoellick, when he was informed of the security breach and data compromisation caused by contractors of Satyam. According to internal audits and checks conducted by the World Bank staff, spy software was found to be installed by contractors brought in by the company. This is the biggest sanction since 2004 by the bank on a corporate.

Satyam called a board meeting in December to give itself time to consider a series of options to shore up investor confidence, including steps to strengthen governance. But the meeting was postponed to January 10 to give itself more time to consider options to shore up investor confidence that took another knock last week after the news that it has been barred from doing business with the World Bank.

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