Satyam dumps Maytas; investors still not happy

Satyam Computer on Wednesdaydumped a $1.6 billion deal to acquire two firms promoted by sons of its chief Ramalinga Raju, as investors outrightly rejected the transaction — leading to a 30 per cent erosion in the software major's share price.

Surprised by the strong reaction of investors, as was reflected in the 55 per cent drop in the company's share value in U.S. market last night, Satyam Chairman Ramalinga Raju on Wednesday called off the deal, which he had announced on Tuesday.

Although Raju called off the deal to acquire Maytas Properties and Maytas Infra — promoted by his sons B. Rama Raju and Teja Raju — much before the domestic markets opened, selling pressure mounted on both Satyam and Maytas Infra, which plummeted by 30 per cent and 20 per cent, respectively.

Rattled by the sharp reaction from investors, Satyam said it was now looking at rewarding shareholders, for it is considering options such as buyback, dividend or bonus.

On his part, Raju said that the company had followed "meticulous and highest corporate governance norms" in pursuing the acquisition, which many institutional investors questioned on grounds of ethics.

The deal was touted as one that would help Satyam diversify and hedge losses from IT business, but it faced stiff resistance from institutional investors such as Reliance Mutual Fund, SBI Mutual Fund, Templeton Mutual Fund and CLSA.

"We have been surprised by the market reaction to this decision even though we were quite positive about the merits of the acquisition," Raju said.

Satyam lost about Rs 5,000 crore in Indian markets in terms of market capitalisation, while the erosion in the U.S. market was nearly $2 billion in overnight trade.

Maytas Infra, where Satyam had proposed to buy 31 per cent from promoters and 20 per cent through open offer, today said in a regulatory filing that the deal has been called off "in light of the feedback received from the investor community."

Promoters, including Raju and his sons, hold 36.64 per cent in Maytas Infra, while institutional investors have 10.92 per cent holding.

Maytas Properties, which was founded in 2005, is not a listed entity.

In Satyam, whose shareholders were key to undoing the deal, 8.61 per cent is held by Raju family as promoters, while institutional investors have a whopping 61.57 per cent. Of this, FIIs hold about 47 per cent in the company, which is also listed in the U.S.. Domestic institutional investors have about 15 per cent holding.

Satyam CFO Srinivas Valdamani said the company has a cash surplus of $1.1 billion and it was meant for inorganic and organic growth and corporate actions like giving dividends and bonus share or a buyback.

"We will take the decisions in few days... buyback is one of the option... (it) being one of the investor friendly measures that we may consider," he said.

"...The entire thing got blown out of proportion because the other party (target parties Maytas Properties and Maytas Infra) they being related to our Director.

"Now it is more of a corporate governance issue projected by the investor community and the media. Whatever we have done, is well within the powers of the Board of Directors," Valdamani said, adding that the company had so far not received any query from the government or the regulator. "We have not violated any of the established regulations."