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The Curious Case Of Mahindra Satyam and its liabilities

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Oh Boy!! This was always on the cards, wasn’t it. Ever since Mr.Raju confessed cooking books in the erstwhile Satyam Computer Services and the consequent acquisition of Satyam by Tech Mahindra , the unearthed financial liabilities of Satyam were a cause of concern. Infact, the marketplace was divided over the price Tech Mahindra paid given  that the dirt on Satyam was not completely out in the open.

Tech-Mahindra-Satyam_0

The dirt has slowly but surely started surfacing with 37 companies slapping legal notices on Satyam claiming a refund of 12.3 billion rupees ($265 million) . The companies which have slapped the notices are primarily the ones which Mr.Raju had used to siphon money to. Looks like the mess created by Mr.Raju is coming back to haunt the now Mahindra Satyam.

What is ironical here is that one of the companies is none other than Matyas– a family company. They claim to have paid on behalf on Mr. Raju’s borrowings and now want Mahindra Satyam to clear the account.

It is imperative that Mahindra Satyam has denied the claims mentioning them as legally untenable. There stance is that the payments were made personally to Mr.Raju and Mahindra Satyam has no liability for honoring the payments. The matter is supposedly to be discussed with SEBI for further course of action.

However , the news has had the Mahindra Satyam share tumble further in the Indian Stock Markets and its ADR receipts have also dropped by around 1%. It is interesting to note that the L&T recently off-loaded a portion of its stake in Satyam which lead to a over 6% decline in its stock price. The legal notices have furthered the woes of Mahindra Satyam.

What raises curiosity here is that when Tech Mahindra acquired the troubled company , wasn’t it evident that the liabilities can spring up. Even though a financial scrutiny took place but the clear picture was not available. On that note, one comes to question if  Tech Mahindra eventually paid a fair price to acquire Satyam.

Satyam might have been a case of a good car with a bad driver , but even then the maligned reputation has not stopped haunting the new buyers. Even with the restructuring of the board and claims of Mahindra Satyam acquiring new clients , the picture still looks bleak as far as the future of Mahindra Satyam is concerned.

Now, if Mahindra Satyam is able to come out clean of this recent development it could save a lot of money that would otherwise need to be paid. The question here is that can Mahindra Satyam be able to maintain the investor confidence going forward. Markets are quick to react (negatively) on announcements like these and uncertainty looms large on Mahindra Satyam.

Will Tech Mahindra be able to turn around the fortunes of a company which is a part of one of the biggest corporate fraud in Indian history? Moreover, it is only early times in the case of Mahindra Satyam. There might be much dirt unfolding gradually as time progresses.

It will prove to be a mighty challenge for Tech Mahindra to establish Brand Mahindra Satyam in the market place. Only time will tell if a turnaround happens but as of now it will be a learning experience following the developments in Mahindra Satyam.

Do you think Tech Mahindra made a wrong decision acquiring Satyam when the financial details were not completely clear ? Is it possible for any organization to restore its reputation and good will after a monumental fraud as in the case of Satyam ? It sure is a curious case of Mahindra Satyam and its future.

  1. Karan Batra says

    i heard that there are a whole lot of cases pending against Satyam ( the fate of which is likely to be decided in December)
    any idea on which all cases are pending and their status??

  2. Mandar Shinde says

    It surely is a curious case of Mahindra Satyam and its future! IMO, buying Satyam was not a bad decision. Satyam had a good reputation among its clientele in terms of courteousness and cooperation. Satyam also had big and good projects in hand, and would definitely have received advance payments, practically. Also, we cannot assume that Mahindra wouldn’t have paid enough attention to such a technically correct possibility. On the other hand, I think it can only be someone with a background like Mahindra’s that can think of entering into such a tricky deal. Mahindra would try to compensate Satyam’s payoffs with TechM’s newbie efforts in this industry. Being Mahindra Satyam must have helped Tech Mahindra in terms of client base, trained human resource, infrastructure, etc. Let’s wait for some time and watch Mahindra’s next move before drawing any conclusions on the Satyam deal.

  3. Madhav Shivpuri says

    Just took a closer look at the Satyam logo and it looks like an octopus with long legs – you never know which leg is going to throttle you :-)

    1. Ankit says

      @madhav LOL..Never thought of it that way.Thats an interesting observation:)

  4. Ankit says

    @trident
    True that, Mahindra should not give into the claims and take the matter legally. My issue however is that if some of the creditors actually did advance payments to the erstwhile Satyam , how will Mahindra deal with that.Technically, if the payments are due in the name the company, then the liability is valid.It will be interesting to see how those are handled

  5. Trident says

    It is a case of Rajus claiming from Raju. Looks like an elaborate fraud set up with an intent to continue stealing from Satyam even after forfeiting it to Mahindras.
    Reference to the borrowings in the so called ‘Confession’ itself should be enough to highlight the intent. Mahindra has every right to reject these claims from these Raju family owned companies.

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