India's Enron SATYAM SCAM

EDGY SATYAM BIDDERS GO INTO HUDDLE

Board To Set An Informal Floor Price Before Bids Open

 THE boards of two of the bidders for Satyam met in Mumbai on Sunday evening to decide whether and at what price to bid for the scamtainted software services company. While the L&T board is learnt to have decided to put in a bid, it was still touch and go at Tech Mahindra.
    The M&M group company may take a final call late Sunday night or even early Monday morning, according to officials familiar with the situation. One person, however, said Tech Mahindra would bid.
    There was no word from the other two contenders, software company Cognizant and private equity player Wilbur Ross. The Satyam directors are believed to have met informally on Sunday evening.
    One of the imponderables bidders will have to consider is the likely existence of a floor price. The government-appointed board of Satyam Computer Services is set to fix an informal floor when bids open on Monday to select a new owner, according to a person familiar with the matter.
    “This price will not be written down so that the board has some flexibility but will be kept in mind while taking a decision. It will not be binding but will help the board reject prices which are absurdly low,” this person said. The board expects a winning bid price which is not too different from the current market price and is above the floor price.
    At exactly Rs 47, the firm would cost around Rs 1,740 crore for a 31% stake through subscription of fresh shares and a 20% open
    offer thereafter. Engineering giant L&T, which has built a 12%
    stake in Satyam, is perceived to
    be the front-runner for the
    scandal-hit Satyam.
    All the four contenders have to
    factor in the order book position of the IT firm while putting a price tag.
    Satyam’s land holdings may also be a factor. The company has land assets of around 450 acres in India, half of which is owned by the IT firm. The rest is taken on lease. The estimated value of the two campuses in Hyderabad is around Rs 1,700 crore. Besides, the company also has around 30 acres of land in China (16 acres) and Malaysia (14 acres), given to it by the respective governments free of cost. Satyam’s staff strength is around 46,600.
    The IT firm is, however, facing half-a-dozen class action suits filed by shareholders in the US after its founder B Ramalinga Raju admitted to fudging Satyam’s books for years. The legal liability for this is estimated at less than $100 million. It is also fighting a legal battle against UK mobile payments services provider Upaid. But Satyam’s US lawyers reckon that the case is a weak one.
    Also, family members of Mr Raju have staked a claim to the company, saying Satyam owes them around Rs 1,230 crore. Highest bid will be floor price for auction
THE information-pack given to the bidders has listed this only as a “claim” and not a liability since there are no entries in the company’s books. The company has obtained an opinion in this regard from former Supreme Court judge BN Srikrishna.
    The government-appointed board of Satyam will open financial bids of bidders who qualify in the technical part of the bidding process. The four bidders aren’t expected to face any glitches here, but the evaluation of the technical bids won’t be a mere formality, said a person familiar with the development.
    The floor price will be an informal one. Hence, there could be some leeway if the highest bidder quotes a price that is a tad lower than the floor price. But a bidder who quotes a significantly lower price than the floor price will have to exit the race.
    The board will have an open auction if there is a less than 10% difference in the price quoted by highest bidder and others. The highest bid will become the floor price for an open auction. This could ensure more money flowing into the company, besides helping the highest bidder. Potentially, there could be multiple rounds of bidding till only one bidder is left.
    Satyam needs a capital infusion of Rs 1,000 crore. The board also has the right to call off the bidding process if the valuation is not in sync with its expectations, and revert the matter to the Company Law Board, which gave the go-ahead for selecting a strategic investor. But that is the worst case scenario, said persons close to the board.

 

 

 

 

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