Satyam - The sharks are circling
New Year’s Resolution – Help Satyam get a new owner and management
On the 19th, I did a lengthy piece discussing the proposed and then rejected acquisitions Satyam’s management recently endorsed. Satyam is a major provider of outsourced services. At that time, I wrote that:
Satyam needs to do the following to regain credibility with its clients and the stock market: 1) dump the CEO 2) dump the board and bring in truly independent board members 3) forget the stock re-purchase – it won’t restore confidence until the governance matters are fixed
Events are moving quickly at Satyam. Barrons today reported that large global integrators, IBM and Accenture were explicitly mentioned, may be in the market to swoop in and buy Satyam. While anyone purchasing Satyam would get access to a significant work force, the acquirer would likely need to drop the Satyam name and re-brand the operation immediately. In my opinion, I would not see Accenture (Symbol: ACN – Note: I am a former partner of and own a few shares in this firm) making this deal unless they could secure a number of long-term client engagements or outsourcing relationships from this transaction. ACN and IBM both would have material (business) cultural assimilation issues to bridge although both firms are quite capable of tackling this. An acquisition would appear to be more of a play for Cognizant, Cap Gemini, HP or a local Satyam competitor (e.g., Wipro).
Satyam has apparently lost four of its board directors. A fifth director has indicated his willingness to stay.
Given the deep price drop and continuing price swings in Satyam’s stock, the management of Satyam may have had their stake in the company diluted due to margin calls. This was reported by Reuters today.
Vinnie, at Deal Architect, reported that Satyam is having issues with its work at World Bank.
The folks at the World Bank had this to say:
BusinessWeek weighed in last week with their thoughts.
Outlook:
The best thing Satyam can do now is be sold to another firm. Investor confidence in the management team appears very low. Replacing this team could be difficult but incorporating the best executives of an acquirer would be quick and effective. The board also needs restructuring/re-staffing.
Satyam will likely not last long as an independent firm. Pressure is probably being mounted now to shop the firm and get a quick deal. Institutional investors will be looking for some sort of deal that improves on the current, low stock price.
Is Satyam’s stock a bargain now? Probably but no one will buy the firm unless the board and much of the current management is gone. The brand is probably a bit challenged and the World Bank matter could further cast a cloud on the brand. A buyer will look at two items: the quality of the firm’s business backlog and the quality (and retention) of the staff within Satyam.
If a deal can happen fast (i.e., in the next 6-8 weeks), the company may not experience material losses of personnel. But, the longer this drama plays out, the worse this will get and the lower a premium a potential suitor will pay.
Doing a deal quickly could be interesting given the current investment climate. Raising the capital needed for a fast, cash acquisition might be tough for all but the largest acquirers.