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Monday, December 22, 2008

Satyam's Experiment In Stupidity

Nobody takes shareholders for a ride – that’s the message that’s gone out loud and clear to the owners and promoters of Satyam Computers, one of India’s biggest IT companies. A corporate fiasco that began as little as a day ago has ended abruptly with the Board of Satyam throwing in the towel against a vastly growing majority of their own shareholders.Satyam’s decision to acquire Maytas Infra Limited was a very difficult decision to swallow for the shareholders. Questions were asked about the need of the acquisition. More importantly, how exactly was the company justified in spending a lot of money on a family owned company?
Satyam knew that they would not in any way have it easy in acquiring Maytas - an infrastructure company owned and operated by members of the same family that also runs Satyam Computers. Satyam did in fact play safe and announced the Maytas acquisition plan a day earlier late in the evening after the markets had closed because had they done so a few hours earlier the stock would have been hammered.

Nonetheless, the stock was hammered anyway and the impact of the announcement had the uppermost management of Satyam in crisis control mode. Satyam’s stock listed on the New York Stock Exchange was beaten down by half its market value.
Fearing the same reaction a few hours later on the Indian stock markets, Satyam’s home bourses; the company immediately realized the extent of the damage they had caused and announced that they had decided to drop the plan to acquire Maytas.
What had happened in New York was only the beginning because on the Sensex and the Nifty; Satyam’s stock was mercilessly drubbed into the sub-200 levels for the first time after a year. By the time the session closed,the stock had closed thirty percent lower leaving the management especially the Board of Directors with an important lesson to heed their own shareholders.
Shareholder opposition to the Maytas acquisition has been eminent for quite a while but their reaction to the company’s enforcement was definitely underestimated by Satyam.
Right from the morning of December 17, 2008 Satyam’s shareholders; big investment, mutual fund houses and average small investors systematically dumped their shares and continued to do so even after they learnt that the Maytas acquisition plans had been cancelled. It was clearly a lesson to Satyam from their shareholders.
There was definitely no need for Satyam an IT company to acquire Maytas-an infra development company. The fact that it was a family owned company that would cost 1.6 billion dollars to Satyam made things worse. If Satyam indeed felt the need to diversify into other fields, then many other choices were available.
It’s been an episode that has definitely embarrassed Satyam and has once again raised the question of Corporate Governance. Satyam in fact went ahead and said that they did not even need shareholder approval to acquire Maytas. It’s been this attitude that’s led to the fall in their share price.

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