New Delhi/New York: Satyam Computer on Tuesday announced a Rs 8,000-crore acquisition of two infrastructure firms promoted by the sons of IT major's chief Ramalinga Raju but stiff resistance from investors led to its shares losing over half of the value in the US market.
India's fourth largest IT company announced that it would buy Maytas Properties for $1.3 billion and a majority 51 per cent of Maytas Infrastructure for $0.3 billion with Raju saying that the acquisition was "purely a business decision" and was not intended to bail out the two firms.
Within hours of the announcement, shares of US-listed Satyam fell by 55 per cent in the opening trade at NYSE.
Shortly after the company's board approved the deal, Raju held an investors' conference and is understood to have faced some tough questions. The institutional shareholders in Satyam such as Reliance MF, SBI MF, Templeton MF and CLSA are reported to be upset with the decision with some even contemplating to resist the acquisition.
At the New York Stock Exchange, Satyam plunged to its 52-week low of 5.43 dollars within minutes of market opening, from its previous close of $12.55.
When contacted, Minister of Corporate Affairs Prem Chand Gupta said the government did not know the fact related to the deal and allegations made by the shareholders as yet and would "certainly look into it" if there were any violations of the Companies Act.
An official of Reliance Mutual Fund, who did not want to be named, said that it was "going to destroy the image of India as a major investment destination, if such things are allowed."
The shareholders would seek to oppose the deal at whatever level possible, the official added.
Brokers and analysts also said that shareholders would certainly reject a deal.
The plunge in the company's stock in the US followed reports that the deal has evoked sharp criticism from some of Satyam shareholders such as SBI Mutual Fund, Reliance MF and Templeton MF.
Officials at SBI and Templeton MFs could not be contacted immediately for their comments.
Ashika Stock Brokers' Research Head Paras Bothra said that the deal has come as a surprise for shareholders when infrastructure firms were strugging and it "can be put as a total misgovernance of the corporate governance."
"With the shares plunging 55 per cent on the NYSE, it is evident that the shareholders would not accept anything that would hamper their interest," Taurus Mutual Fund's Managing Director RK Gupta said. "At times decisions can go wrong and considering that shareholders have given a thumbs-down to the deal it is most likely that the deal is not in best of their interests."
Gupta, however, added that the US market may have over reacted, although in most of the fsinesses the corporate governance is poor.
"Family business usually concentrates on maximising profitability for the shareholders, but the Satyam deal is more of a promoter to promoter deal," he added.
Rejecting suggestions that the acquisitions were aimed at bailing out the companies promoted by his sons, Raju said that the decision was purely based on vpresent day scenario is at low levels.
"As far as Maytas Properties is concerned we are essentially making sure that he (my son) would not be part of the team...," Raju said.
On Maytas Infra, a listed entity where Satyam will take 51 per cent acquisition including that from the open offer, Raju said that till the process of acquisition is completed in the next two-three months the present team would stay.
"Post acquisition, there be a change of management," he said. "The two acquisitions pave the way for accelerated growth in additional geographies and market segments such as transportation, energy and several infrastructure sectors for the core IT business," Raju said.
The two properties are promoted by Raju's son Teja Raju.
"The deal would de risk the core business by boot - strapping a new business vertical in infrastructure," he said, adding that this market segment can mitigate risks attributed to developed markets and traditional verticals that are likely to be impacted by the recessionary trends in the economy.
The aMaytas Properties would be immediate while in case of Maytas Infra, Satyam would acquire 31 per cent from the promoters and make an open offer for additional 20 per cent from the public as the company is a listed entity.
Bothra of Ashika Stock Brokers said that the shareholders gave a thumbs-down to the deal as they felt that the deal might not fetch them the extent of returns that they should get.
"It's sheer vested interest and some personal issues are being carried out between the promoters of the two companies rather than giving priority to the shareholders interest. With some MF houses issuing their note of discontent and if the shares continue its southward journey it is most likely that Satyam would be asked to withdraw from the announced deal and the stock could seen in the domestic market," he added.