Satyam may get strategic investor

K V Ramana Monday, December 29

The promoters of Satyam Computer Services may be on the lookout for a white knight to bail them out of the crisis following a botched deal to push through two related-party transactions recently.

Going by sources, roping in a strategic investor and giving him a place on the board is an option being considered seriously, for such a move could help reassure shareholders of the continuing positive outlook of the investing community on the company and its prospects. The issue is likely to come up for discussion at the board meeting to be held on January 10, 2009. The listed agenda for the board meeting includes dilution of promoters’ equity.

The promoters of Satyam currently have about 8.61% stake in an equity base of Rs 134.7 crore. Institutions hold about 61.57%, while the rest is with the public and other corporate bodies. The dilution of promoters’ stake would happen either by the promoters led by Satyam chairman B Ramalinga Raju selling off a part of their stake to the strategic investor or by issuance of fresh capital.

Though rumours are rife that Raju would sell off his stake completely, sources in Satyam say the chairman will not wash his hands off fully. “He is willing to step down as chairman and he is also willing to dilute his stake. But, complete sell-off means divestment and not dilution,” a source argued.

Analysts too feel the promoters won’t sell off their stake entirely to give way to a new investor. Ajay Paramar, a Mumbai-based analyst, told DNA Money it was unlikely Raju would exit. “But, I don’t think the fresh capital is an acceptable proposition as well. When the company does not need any funds, there is no reason why fresh capital should be issued. We have to wait for the details to emerge,” he said.

All the same, the equity offer to the strategic partner is likely to be at a “good premium”, so as to impact shareholder and investor sentiments positively. The company had earlier scheduled a board meeting to consider a buyback of shares on December 29. This has now been deferred to January 10 even as the scope of deliberations has been expanded beyond a buyback of shares. According to the fresh agenda for the upcoming board meeting, the company would increase the size of its board of directors and also change its composition. Currently, the company’s board has nine directors including chairman B Ramalinga Raju, managing director B Rama Raju, president of the company Ram Mynampati, Harvard Business School professor Krishna Palepu, the Father of Pentium Vinod Dham, dean of the Indian School of Business M Rammohan Rao, former Cabinet secretary T R Prasad and former director of IIT Delhi V S Raju. Another independent director, Mangalam Srinivasan, had tendered her resignation last week assuming moral responsibility for not casting her dissenting vote on the proposal to acquire the two Maytas firms.

According to sources, the new board would have more directors and replacement of Ramalinga Raju as its chairman.

“There are clear indications about a new chairman taking over the reins. But, one has to wait till the board meeting to officially hear about it,” a source in the company said.

Chairman Raju, sources said, is considering offering his resignation in a bid to counter allegations about the independent directors favouring the promoters in acquiring the two companies promoted by his family members for a whopping $1.6 billion.

However, company officials were not willing to comment on his resignation yet. The fresh agenda for the upcoming board meeting would also consider engaging the wealth management, capital markets and advisory company DSP Merrill Lynch to assist the management in reviewing “strategic options to enhance shareholder value”. Merrill Lynch holds 90% of DSP Merrill Lynch.

Though it is being speculated that the wealth management company is being hired to scout for an investor or evaluate investors who have already shown interest, company sources said its mandate would also include finding out ways to do an image makeover.

“More than anything, it is the image of the company that has taken a complete beating. DSP Merrill would also take up that task of suggesting ways to overcome the crisis,” a source said.

Company officials though are tightlipped for now. “We have no idea about the details of the agenda other than what has been shared with you (the media),” a company spokesman said.

Meanwhile, Vinod Dham, one of the independent directors, told DNA Money in an email that he had asked for a special board meeting to discuss the developments. “All of the Satyam Board members have not had a chance to get together to discuss the developments since the last board meeting and various options available going forward.

There is agreement that we need to address all of the issues including the ones you (the media) are bringing up on an urgent basis. Please bear with us as we get our arms around this crisis,” Dham wrote.