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Satyam acquires Maytas Infra and Maytas Properties – All in the family

Satyam Computers will acquiring 100% stake in Maytas properties for $1.3 billion and 51% stake in Maytas Infra for $300 million. Both the companies are in real estate sector. Maytas Infrastructure has the $4 bn Hyderabad metro project in its kitty. Maytas properties deals with urban infrastructure and Raju family owns 35%.

75% of acquisition (Maytas Infra + Maytas Properties) will be from Satyam’s cash reserves. 25% will be via debt.

51% stake in Maytas Infra will be acquired in two stages. Satyam will acquire 31% of promoters (mostly Raju family) stake in Maytas Infra at 475 rupees per share. Balance 20% would be acquired by a open offer for 525 rupees per share. The current market price of Maytas Infra is 486 rupees.

Satyam Shareholder pattern : Indian promoters – 8.75%, Institutional Investors – 61.22%, Other Investors – 21.29%, General Public – 8.75%. Here Raju family or the Indian promoters hold only a minority of the stock. Majority is held by FII’s and mutual funds. Their approval is critical for this deal to go through. (source)

Maytas Infrastructure Shareholder pattern : Indian Promoters – 36.64%,  Institutional investors- 11.72%, Other Investors – 28.43%, General Public – 23.2%. Majority is held by Indian promoters which makes it easy for the acquisition.

I am a little confused here. Satyam a publicly listed software services company which has no debt and ~$1.6bn cash is buying two real estate companies. The two real estate companies are again promoted by Raju family. 35% of Maytas Properties is owned by Raju family and 36% of Maytas Infrastructure is held by Indian promoters who again are mostly from Raju family.

So, a major chunk of $1.3 bn would go to Raju family from Satyam Computers books?

The buyout will de-risk the core business by bootstrapping a new business vertical in infrastructure. – Press statement

The announcement came after Indian markets closed but the US markets did not spare Satyam stock. Fresh from the Madoff scam and the auto bailout failure, US markets did not need much of a bad news to dump this Indian stock. Satyam just helped their cause. Satyam is down 54% on NYSE when I checked at 10 PM IST.

There are lot of questions to be asked.

What kind of diversification is it anyway for a IT services company to buy a real estate company? Of the two sectors IT sector is doing better than a real estate company.

HCL-Axon deal makes sense as HCL is gaining new expertise in SAP area. Infosys with $1.6bn cash did not go through with the deal and was happy with the cash. Satyam for all the companies in the world picked up 2 real estate companies and running into debt? When did real estate become a hot sector?

Can someone explain what’s going on?

Update  : As of 10:10 AM IST on 17th December 2008, the deal is called off by Satyam. Source : CNBC.

About Sriram Vadlamani

Sriram Vadlamani is the Editor and co-founder of The Gadget Fan and a columnist at Asian Correspondent. You can follow him on twitter @6sv

10 comments

  1. “I BELIEVE IN Satyam Now more than ever” Following facts cements by trust and believes in Satyam 1. The recent news on print media and channels does not affect our commitment to CLIENT, We have a solid , robust and proven framework in place to ensure smooth functioning of routine activity. 2. Intent of investment was right and in best interest of business 3. We have Presence across the Globe (20 Industries ,65 Countries) more diverse than Wipro & INFY. This does happen by accident but thru a thoughtful effort, strategy and direction provided by able leadership. This spread helps Satyam in tough economic conditions.Our Revenue outside India in Asia Pac are more than any of the Top 3 Indian IT services firm. De-risked Geographic revenue distribution 21% Europe, 17% Asia Pac, 62% America’s. Best present to leverage emerging markets. 4. We create leaders in Satyam -Each of us runs a small or medium sized company – Each head of Business (FLCL) is like a true CEO 5. Revenues & Net Income have Grown Five-fold over last 5 years. This by sheer hard work by 50,000 people. Not by accident 6. FY08 was the 5th successive year of >35% Growth in Net Income. Show’s how we have got profits year after year. 7. 32% revenue coming from New & Emerging vertical : Satyam has diversified and expanded is industry depth. 8. 52,865 associate Attrition @ 12.27% 9. 12 large and strategic deals closed in FY08; 4 in H109 10. Deepest Fortune 500 client penetration 185, Total 690 clients. Clients continue to support Satyam in spite of the issues that have surfaced in last 10 days. Company has as many clients as Infosys and strong fundamentals then why worry? We will come back soon with bigger wins

  2. I am sharing some facts, i repeat facts only to share with you why Satyam still is a fundamentally sound company: 1. Satyam has Presence across the Globe (20 Industries ,65 Countries) more diverse than Wipro & INFY. This does happen by accident. This spread helps Satyam in tough economic conditions. Did you know outside India in Asia Pac Satyam revenue are more than any of the Top 3 Indian IT services firm. De-risked Geographic revenue distribution 21% Europe, 17% Asia Pac, 62% America’s. Best present to leverage emerging markets. 2. Satyam has Mature Practices DWBI & ERP. HCL had to spend over 0.5 Bn to get the ERP skills which we already have. they just save $ 0.5 Bn 3. Revenues & Net Income have Grown Five-fold over last 5 years. This by sheer hard work by 50,000 people. Not by accident 4. FY08 was the 5th successive year of >35% Growth in Net Income. Show’s how they have got profits year after year. 5. 32% revenue coming from New & Emerging vertical : Satyam has diversified and expanded is industry depth. 6. Deepest Fortune 500 client penetration 185, Total 690 clients. Clients continue to support Satyam in spite of the issues that have surfaced in last 10 days. Company has as many clients as Infosys and strong fundamentals then why worry? 7. Company has the largest cash reserve to revenue ratio in IT industry as a result of company employees under management direction … why question it now? 8. Client delight index is a 4.5 out of 5, client retention is 98% – clients are an asset – do not loose sight of the fact and do not slight Satyam and management for just one aberration – this is an organization and not just a script on the BSE/ NYSE

  3. hmmm but as one goes through the fine print it seems that no law of the land has been voilated and also the board consist of some of the best names, also this was the same set of management which made this company so sucessful so if they had bad itentions why wait till now and why would international bodies recoginize them for corporate governance, i think there is more to this than what is being splashed in press / media which seems to be only one side of the story

  4. Hi Arun, I have a similar post regarding the Satyam-Maytas blunder, and I have tried to look at a few explanations regarding the same. http://mybizview.blogspot.com/2008/12/agency-problem-in-indian-business.html

  5. Well, Satyam has now stepped away from the deal after considering the investor reaction.That may in itself be a good act, and an act of faith towards the Investment Community. Satyam has been a consistent perfomer on the stocks after all; and would surely be able to tide over this turbulent situation.

  6. The only sense that anyone could make out from the deal was that the Raju family over dinner decided,”lets get our share prices down by half” and then these guys came with the decision. But,yes Indian markets were kind enough and they dived only around 27%..lol

  7. Check this out where MR Ramaling Raju is trying to make sense of the deal, its funny ! And I am wondering what sorts of board members this firm has ! Seems nonsense in every way but they approved it ! http://www.business-standard.com/india/news/it-made-sense-to-buyinfra-firm/08/41/343513/

  8. haha! I agree with Ankit..I mean what were the Raju family thinking? they could just get away with it? that too in these stressful times…where every dime spent is scrutinized under a microscope?

  9. I guess your questions have been answered already.The whole thing never made sense,and the investors sure gave Satyam a piece of their mind. Deal is off,and stayam adr plunged 55% already.The price you have to pay to be stupid and that too in public:-)

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