Gurkanth Desai, the protagonist in the motion picture GURU says “ If people start talking against you…think you are making progress” . This is true of what happened over the last few days for Satyam Computer Services. Satyam’s board had decided to acquire Maytas Properties and Maytas constructions and this invited the wrath of the investor community. Both international and domestic (Indian) investors had a lot so say, which they should have in a better way.
A lot of retail investors were also angry at the management for taking such a landmark decision to wipe out Satyam’s cash and pump it into a rather unrelated industry.
I have been following this story from Day zero and my thoughts have been rather mixed. Initially I could not see a sound logic for the kind of synergies that such a move would establish, however as I deliberated the matter in combination of what I know of the company and the aggressive growth appetite there is, I have framed my opinion. Read on.
Satyam has got used to exceeding revenue guidance. If one looks at the last 4 year stats on USGAAP revenue, Satyam has been recording a year on year increase of revenue in excess of 30%. Same is the case with gross profit, except in 2007. I am guessing this could be due to some strategic acquisitions such as Bridge Consulting, S&V Consulting, and Caterpillar MR&CA etc. These companies that Satyam bought were to augment the stance of being a serious Business Transformation player in the IT-BPO scene. Moving up the value chain and present a consulting driven top down approach for developing solutions.
Being one of the top 5 integrated IT-BPO firms, a lot rides on Satyam to set and exceed benchmarks. Take a look the history of the company. Satyam was the first to start an Internet Service Provider company with top notch customer care and uptime – Satyam Infoway. Satyam Infoway later became the first Indian ISP to be listed in NASDAQ. The JV with Dun and Bradsheet was strategic and robust enough to become a spin-off independent company. This spin off is now known as Cognizant Technology Solutions. The World Economic Forum held in the year 2000 at Davos recognized Satyam as one of the 100 most pioneering technology companies.
And the list goes on…
The point is, one can find several such examples where strategic and visionary decisions taken by the same management panned out damn well. I listen to all earnings calls conducted by Satyam at the end of each quarter/ year and investors love the numbers. May be we missed the vision behind this Maytas deal. Why would a proprietor of a cash rich firm risk all of the cash if he is not sure of what he is doing?
The market has always been witnessing upsides from Satyam. Be it the M&As, organic growth and measures to curb costs in recent times. This is one robust company to watch and invest.
What happened in the week of 15th December, 2008 was an abrasion of sorts and this has got nothing to do with Maytas or the board that passed the resolution. It is just a matter of what the investor community wanted. They did not want a cash rich IT firm to diversify in a sector that was over leveraged. That’s all. In order to voice this sentiment, some investors shouted, some spoke rudely and some expressed their dissatisfaction by threatening to lobby against the deal. Few even de-rated the stock. All are just, if you ask me. Kneejerk? Yes!
The situation was more like a father wanted his son to pursue engineering while the son wanted to study law. Father knew law is a good field, but he wanted his son to study engineering. Son being who he is obeys the father and takes up engineering. No one is wrong here; it is just a matter of choice by a focus group that has stakes.
Now, Satyam’s management and board have retracted the decision and the media has blown the whole thing out of proportion.
Ironically, the whole buy out brouhaha happened in the same week when Indian media had taken a resolution to practice restrain on sensitive issues, such as terrorism or anything that requires responsible reporting. Media has failed here. Again.
Notwithstanding the brash Hindi news channels, who seem to have separate theme music for spicy stories, the elite English news channels approached this issue with leading questions. Picture this, the news anchor of a reputed English business news channel asked to an fund manager “…So now do you think this (the buyout recall) will impact Satyam’s reputation in a near to long term basis…and do you think that this would result in a management change….?”. The answer was a simple “yes!”.I think this is a sheer irresponsible way of covering breaking news with a biased mindset. Satyam’s strong brand equity has also played a role. Frankly, our media is to be blammed for screwing around with a situation which was already tanking, be it Satyam – Maytas, Mumbai attacks or stock markets. The investors over reacted because, such game changing decisions were not expected from elite IT firms.
Corporate governance eventually became a buzz word. Just like National Security Guards, post the Mumbai attacks! Untill the previous evening; no one knew these phrases in great detail. Today everyone is searching for those.
If you look at Satyam’s attempt of the acquisition, it is clear that the whole transaction was perfectly legal. No clause on the company law, SEBI etc has anything that prevents such a move. So, what do we make of a legal business decision which upsets stakeholders? It is just an overwhelming impact of “I don’t like what you just did…” sentiment. Much like smoking, it is legal, allowed but not recommended.
I think it is time to move on from this. I think the management has behaved very responsibly by dumping the plan in a matter of hours (remember the whole cycle of announcing the Maytas deal and cancelling happened within 10 hours, when India was sound asleep in the night and the markets were closed) and respecting investor community. I think one slip is statistically treated as an outlier and one slip in 20 years is not a trend. Give it up folks, move on.
There is someone in Gujarat starting a pseudo company with penny stocks and getting it listed in BSE/NSE. Catch him. Let that be breaking news, not something that responsible companies ending up doing or not doing. Especially when they correct the error within one trading day.
Update : The views and opinions expressed in this post is limited only for the events during the Satyam-Maytas acqusition drama. The story has taken a drastic turn following the recent confessions of the chairman on account of fraud and doctoring of financial statements since 7 years. The perception of the company and the management is dented forever.The Satyam-Maytas drama is now just a side plot on what can be termed as a huge developing story
{ 4 comments… read them below or add one }
Nice writing style. I look forward to reading more in the future.
Nice it to see someone looking at the glass which is half filled, i do agree for media it was Jet Airways where you had politicians with no or very less knowledge of aviation biz commenting and in Satyam case you had news anchors / analyst with no or very lil knowledge doing the same
Yes, i think we should move on and get onto something else..
Yes i think we should move on from this issue already the financial situation is vey bad and making these type of issues larger by not having any thing is not good ……….
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