Tech Mahindra has a new middle name and it is Satyam. The new kid is Tech S. Mahindra. Coming to the real deal, Tech Mahindra is the successful bidder for the Satyam Computer Services. It has offered 58 rupees per share, which values Satyam at $1.2 billion.
Tech Mahindra and the Mahindra group is on cloud nine after this victory. Right now, Satyam is the crown jewel for Tech Mahindra. Tech Mahindra has quite a few acquisitions but nothing like Satyam. In fact no other Indian company has made an acquisition like Satyam (HCL-Axon comes close).
The synergies between the two companies are almost negligible. Tech Mahindra works in the telecom space and gets 90% of its revenues from 10 clients in the UK. Satyam gets majority of its revenues from the US and is diversified across sectors with a heavy concentration in BFSI sector. Bad management mars Satyam but Tech Mahindra is known for its operational efficiency, which directly comes from the Mahindra Group. That is where the differences end.
Yet, both companies speak the same language of business – Employees, clients, dollar rate and the operating margin. This is where Tech Mahindra’s management should come in handy to plug the leaks of which there are many. It needs to shake up the whole company from top to bottom and in the reverse order.
The curious case of Larsen and Toubro
I really did not get L&T’s strategy here. It bought 4% share initially when the Maytas deal happened for ~160 rupees a share. It bought 8% more when the Raju’s confession came out and later stock plunged to 6 rupees. But, when it came to actually buying a total of 30% it offered 46 rupees per share. Was it serious to begin with or just playing it? Maybe it is one of the dark knight in the race to just get the bidders in.
Maybe Tech Mahindra wanted it so badly and maybe L&T did not want it so badly. Either way it is a win-win for all the parties involved. L&T will get a better valuation for its 12% stake and its theory of averaging out might actually work 6 months down the line. Remember its break-even price is at 80 rupees per share. And don’t even get me started with Wilbur Ross. It offered 20 rupees per share. Come on! I paid 22 rupees per share. And this Ross and Co want to prove that they are smarter than me?
Back to Satyam and Tech Mahindra
Not sure if merger is an option here. It might not be a bad choice and in fact might be a very good choice to get away from the phantom of Ramalinga Raju. Going forward Satyam, as we know it might not exist. Here are the 2 actions, which should happen.
Action plan for Tech Mahindra:
- Change the name of the company – right away. Satyam has a brand value but its name now resonates with scam and that needs to be changed. It is sad to lose the brand name in an unfortunate way but this has to be done.
- Get a new CEO and CFO – preferably from the Mahindra stable. I know the current CEO is doing good and stuff but I would start fresh.
PS: One more action item for Tech Mahindra is to pay Raju family 2000 crores as per NDTV. Let us say this one more time aloud please – WTF.