Tech Mahindra wins bid for Satyam

update Subsidiary of Tech Mahindra edges out contenders including Larsen and Toubro, for right to acquire 51 percent stake in embattled IT services company.
Written by Vivian Yeo, Contributor

update IT company Tech Mahindra has emerged as the new owner of Indian IT services provider Satyam Computer Services.

Satyam's board on Monday, selected Venturbay Consultants, a subsidiary of Pune, India-based Tech Mahindra, as the highest bidder to acquire a controlling stake in the company, according to a media statement.

Satyam announced in early March it would sell a 51 percent stake in its business. Other interested bidders were identified as India-based conglomerate Larsen and Toubro, private equity firm Apax Partners and Wilbur L. Ross Jr., an investor from New York.

Kiran Karnik, the chairman of the Board of Satyam, said in the statement: "The selection of the highest bidder, in a fair, open and transparent process, signals a new stage for the company in its progress towards stabilization and growth.

"We hope this will infuse greater confidence and comfort amongst customers, who continue to be happy with Satyam's excellent service delivery. This event ought to dispel the anxiety of all stakeholders as it re-positions the company’s commitment to revival and good governance."

Under the agreement, Tech Mahindra agreed to acquire 31 percent of Satyam's shares. The remaining 20 percent will be bought from shareholders during a public offer exercise.

Work ahead for new company
The latest development, three months after Satyam's founder and chairman B. Ramalinga Raju admitted to fraud and forgery of accounts, is likely to benefit both Tech Mahindra and Satyam, according to an analyst.

Philip Carter, IDC's associate research director for services in the Asia-Pacific region, said having a tech company control Satyam would lend credibility to the new entity. Cash and liquidity was also important, but there was a limit to the assurance that a private equity investor, for example, could offer.

"I think what customers and prospects for Satyam in the region were looking at was also the extent to which they could continue to deliver services according to what was expected," Carter pointed out. "Having a tech company take over makes a big difference in terms of credibility."

According to him, Tech Mahindra, formed out of a joint venture between Mahindra & Mahindra and BT, is a tier two vendor that derives nearly 100 percent from servicing telcos. "They have been trying to diversify their revenues over time, so what Satyam now provides them with is a quick fix to that diversification strategy," he said.

Carter noted that going forward, the new entity will have to proactively engage various stakeholders, and quickly provide transparency regarding its finances and financial viability. Although over 40 customers have ditched Satyam for competing IT services providers, it may still be able to persuade existing customers to renew contracts, as well as be invited to bid for new deals.

"Customers understand the costs of migrating away from a current provider, and especially in the current economic situation, they want to have reasons not to migrate," he explained. "If the combined entity can provide those reasons, then the chances of them securing the business as it stands, is going to grow significantly."

Satyam brand may dissolve
Phil Hassey, services vice president at Springboard Research, told ZDNet Asia in an e-mail that the developments since the scandal broke, have indicated that "Satyam as a brand and entity is dead".

Rebranding was essential for the new company and the further it is associated from Satyam, the better, he said, adding that "almost every Satyam client I have spoken to is seriously looking to quickly move resources away from the firm".

Concurring, IDC's Carter said the Satyam brand was a double-edged sword. It is now a "pretty tainted brand", but on the other hand, tier two vendors typically struggle to get onto the shortlist on larger contracts which Satyam prior to the scandal would have access to.

Carter added: "I would go with a new start--everyone would have a good idea [of what] has happened to Satyam--that should get [the Tech Mahindra company] on some of the shortlists that they weren't getting on previously."

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