Saturday, March 14, 2009

Satyam- Where Angels Fear to Tread

Many companies are reported to have given an EOI for Satyam!! Amazing what gets in to heads of foolish CEO's who gamble with shareholders' money. I bet every CEO only wants to put in a bid to become a conversation piece at a dinner and hence this vanity.
The very idea of a 'Strategic Investor' in Satyam is funny. It is also interesting to see the media faithfully reproduce this terminology without even pausing for breath!!
A strategic investor comes in when someone else is already owning the company or managing it efficiently and the so called strategic investor has some business reason to make an investment.
In this case, any one who comes in cannot come in without total control. It has to be a buy out.
Of course, buying this company is more foolish than it looks. The company is today being guided by three blind men appointed by the government. None of them have any clue about what is going on, but look respectable to the outside world. The sooner those wise men exit and some one who has a stake comes in, the more the likelihood of the company surviving in some form.
As it is, it looks very unlikely that this company will survive in any meaningful manner. People leaving, no clue of its liabilities, no assets visible and the key men still loyal to Ramalinga Raju for sure. Business will also desert this company as no one with any kind of stake is at the wheel.
L&T is stuck with an interesting problem. One wonders whether the company's board actually wants to buy this company at all or it is one man's whim that is driving everyone around. Being a 'professionally' managed company with an unholy history, no director will oppose the CEO when he makes a fervent plea to 'protect' the money that is already down the drain.
Satyam should be wound down as quickly as possible. Banks have lent money to the company under some stupid notions. I cannot imagine an IT company that does not have money to meet its salaries!! The money lent by bankers is a goner for sure. The only way for them is to ever green this loan after some foolish buyer steps in.
No one is minding the store at Satyam. The government appointed Board is a joke. No employee wants the Board either. Every business head would have been aware of what went on and would be a liablility to every new acquirer. Ignore them and the company is worthless!! A classic hobson's choice!!
The company's business seems to be disintegrating rapidly, with people and clients leaving in droves. If someone were to pay Rs.50/ per share, he would have to spend around Rs.800 cr to just to get around 25%. At this price, it makes no sense at all. Even if you leave it in the bank, it will earn you more than Rs.80 cr!! The liabilities and the legal tangles in Satyam will make sure that it will be many years before one can see any returns. It would be easier to take away some key people and do business afresh!!

1 comment:

naveen said...

Angels do seem to rushing in blindfolded!

L&T is probably trying to rescue a bad loan against shares to Raju, the wrong way - flinging good money after bad.

Buying out the code writers would probably be a better bet than valuing Satyam at over Rs. 3000 cr and buying 51% of it.