Recently Tech Mahindra won the bidding auction for a majority stake in Satyam Computer Services Ltd. which has been seeking some rescue since it was hit by the country’s biggest accounting fraud. Tech Mahindra outbid the other two bidders: engineering giant Larsen & Toubro (L&T) and International distressed fund investor WL Ross and Co. While Tech Mahindra bid at Rs 58/share L&T and Ross were distantly behind at Rs 45.90 and Rs 20 /share respectively. The reason for such low bid by WL Ross & Co. is cited by many that it lost interest as its partner for the bidding Cognizant Technology Solutions withdrew from the bid. As the next bidder was at less than 90% of the highest bid value Tech Mahindra was easily declared the winner.
Tech Mahindra has to pay Rs 1756 crore ($351 million) for 31 % preferential allotment of new shares. Later it has to make open offer for further 20 % at Rs. 58 /shares. If the open offer does not get fully subscribed, Tech Mahindra will have the option of going for a second preferential issue and raise its stake to 51 % to become the majority shareholder. Overall it will be investing Rs 2880 crores to get the 51% stake. This deal values the fraud-hit Satyam Computers at about Rs 5,665 crore ($1.1 billion).
Tech Mahindra will require Rs 2880 crore to sail through this deal smoothly. Moreover it may have to immediately invest for operating expenses of Satyam which according to some analysts could go up to Rs 1000 crore. In its balance sheet Tech Mahindra has about Rs 700 crore in cash. It will be looking for debt financing for the rest of the acquisition value. This is likely to put stress on its balance sheet which as on Mar 2008 had total asset value of Rs 1323 crore.
About Tech Mahindra
“Tech Mahindra is a leading provider of solutions and services to the telecommunications industry, majority stake owned by Mahindra & Mahindra Limited, in partnership with British Telecommunications plc. With total revenues of Rs 37,66 crore in the year ended March 31, 2008, Tech Mahindra is India’s 6th largest software exporter, and serves telecom service providers, equipment manufacturers, software vendors and systems integrators. Tech Mahindra solutions enable clients to maximize returns on IT investment by achieving fast time to market reduced total cost of ownership and high customer satisfaction. Tech Mahindra achieves this through its domain and process expertise, distinctive IT skills, research and development, proven innovative delivery models and approach to off shoring.”
About Satyam
“Satyam (NYSE: SAY) is a leading global business and information technology services company, delivering consulting, systems integration, and outsourcing solutions to clients in 20* industries and more than 65* countries.”
* Figures as of September 30, 2008
Before Satyam's scandal was disclosed in January, Satyam was ranked India's fourth-largest outsourcing firm and Tech Mahindra was sixth-largest.
Tech Mahindra has to pay Rs 1756 crore ($351 million) for 31 % preferential allotment of new shares. Later it has to make open offer for further 20 % at Rs. 58 /shares. If the open offer does not get fully subscribed, Tech Mahindra will have the option of going for a second preferential issue and raise its stake to 51 % to become the majority shareholder. Overall it will be investing Rs 2880 crores to get the 51% stake. This deal values the fraud-hit Satyam Computers at about Rs 5,665 crore ($1.1 billion).
Tech Mahindra will require Rs 2880 crore to sail through this deal smoothly. Moreover it may have to immediately invest for operating expenses of Satyam which according to some analysts could go up to Rs 1000 crore. In its balance sheet Tech Mahindra has about Rs 700 crore in cash. It will be looking for debt financing for the rest of the acquisition value. This is likely to put stress on its balance sheet which as on Mar 2008 had total asset value of Rs 1323 crore.
About Tech Mahindra
“Tech Mahindra is a leading provider of solutions and services to the telecommunications industry, majority stake owned by Mahindra & Mahindra Limited, in partnership with British Telecommunications plc. With total revenues of Rs 37,66 crore in the year ended March 31, 2008, Tech Mahindra is India’s 6th largest software exporter, and serves telecom service providers, equipment manufacturers, software vendors and systems integrators. Tech Mahindra solutions enable clients to maximize returns on IT investment by achieving fast time to market reduced total cost of ownership and high customer satisfaction. Tech Mahindra achieves this through its domain and process expertise, distinctive IT skills, research and development, proven innovative delivery models and approach to off shoring.”
About Satyam
“Satyam (NYSE: SAY) is a leading global business and information technology services company, delivering consulting, systems integration, and outsourcing solutions to clients in 20* industries and more than 65* countries.”
* Figures as of September 30, 2008
Before Satyam's scandal was disclosed in January, Satyam was ranked India's fourth-largest outsourcing firm and Tech Mahindra was sixth-largest.
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2 comments:
Hi Abhishek,
So these 31% new shares will dilute the existing share value, shouldn't the share value be going down then?
Ankur
Yes, it will dilute the existing shareholder's stake in the company as measured by the percentage of total shares but since Tech Mahindra is giving Rs. 1756 crore for these new shares the overall company's assets also increases by this amount and this adds value to the existing shareholders. More importantly, in this case, since it's a very uncertain future that Satyam is facing, having Tech Mahindra may help reduce this uncertainity to some extent.
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