Satyam's bidders face task of pricing the unknown

BANGALORE, INDIA: Satyam Computer Services looks an attractive takeover target given the massive plunge in its share price and a long list of marquee clients, but bidders face a tough job to put a price tag on the fraud-hit Indian company.

Uncertainty about Satyam's financial accounts and its liabilities, including lawsuits, makes a deal difficult to complete and even harder to sell to shareholders.

Two investment banking sources, who declined to be identified, said up to eight registrations had been made by Thursday when the deadline for registering bid interest ended. Reuters could not independently verify the number.

The sources did not want to be identified because they were not authorised to speak to the media. Satyam declined comment.

New York-listed Satyam has been struggling since founder and Chairman Ramalinga Raju shocked investors in January, saying profits had been overstated for years and assets falsified in what has become India's biggest corporate scandal.

"The Satyam buyer is going to put a good amount of money in these hard times. Obviously nobody would like to take undue risk by buying Satyam without knowing its finances and liabilities," said Tejas Doshi, head of research at Sushil Finance in Mumbai.

Engineering and construction firm Larsen & Toubro, IT services company Tech Mahindra, diversified Spice Group and iGate Corp all said they had registered their interest for a 51 percent stake the company that once ranked as India's fourth-largest IT services company.

Larsen, which has built up a stake of about 12 percent in Satyam, is seen by many as a front-runner. Buying Satyam will help Larsen boost its smaller IT unit.

Satyam's government-appointed board is keen to bring in an investor to restore confidence among its roughly 50,000-strong staff and more than 600 customers, which include General Electric and Qantas Airways. The Board today said that it has received adequate response from Indian and international bidders. It also requested former Chief Justice of India to oversee and guide the Board in the selection process.

At Thursday's closing price of 47.20 rupees, Satyam was valued in the market at about $625 million, a fraction of $7 billion in May 2008.



Pricing Satyam

Investment banking sources said most bids were likely to be between 40 and 50 rupees, but that could change depending upon disclosures about its legal liabilities, receivables, cash balance and client numbers. Satyam shares closed at 47.2 rupees on Thursday, and were weaker on Friday.

"It is too fluid as we are not sure how much information will be made available to the potential bidders," said an investment banking source, who declined to be named as he was not authorised to speak to the media.

"With whatever I know, I will give 40 rupees a share."

Satyam's bidders have until March 20 to submit a detailed expression of interest and show they have at least 15 billion rupees ($290 million) available.

Shortlisted bidders will get access to certain business, financial and legal information, but restated financial accounts won't be available during the bidding process.

"It is a risky buy and we have to see to what extent the buyer is able to factor in the risks into the final price," said Harit Shah, a sector analyst with Angel Broking.

"The company has a good business model, but I think the pricing will be conservative after adjusting the liabilities."

Late last year, India's HCL Technologies bought British consultancy Axon for $616 million, valuing it at 16-18 times 2008 earnings, analysts said. But with Satyam's earnings still to be restated, such a value is hard to estimate.

The growth rate of India's IT services sector has also taken a beating as a global economic crisis crimps orders.

Goldman Sachs and India's Avendus are advising Satyam's board on bringing in a strategic investor.

Satyam faces class-action lawsuits from U.S. shareholders, and the Times of India newspaper had reported this could cause a liability of between $440 million and $840 million, quoting the chairman of Spice Group.

Investment banking sources said Tech Mahindra could tie up with private equity firms for its bid, which if successful would lift it into the top tier of Indian outsourcing firms.

Global IT firm Capgemini has said it had no interest to buy a stake in Satyam. Earlier, sources told Reuters IBM was unlikely to be interested in bidding.

"I admit it's risky but I would argue that there is an appropriate price for everything," said Karl Keirstead, a technology analyst with Kaufman Bros in New York.

"Given the obvious risk profile around the lack of financial statement clarity, the fact that clients are beginning to depart, the fact that IT spending is declining, clearly the bids would come in low, but there is a fair price for Satyam and that's well above zero."