SATYAM GETS SEBI NOD TO SHED 51%

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THE government-appointed board of Satyam Computer Services is set to invite expressions of interest (EoIs) from potential bidders after the market regulator allowed it to sell a majority stake in the fraud-hit company.

Sebi’s approval for a global bidding process would allow a strategic investor to acquire 51% of the company. The field will now be open to global technology firms like IBM, Fujitsu and Oracle, besides local entities like engineering firm L&T, Tech Mahindra, BK Modi-promoted Spice Group and Hinduja Global Solutions.

“Several MNCs will bid for Satyam as it can provide them a low-cost operational base in India. Besides, the valuation of Satyam would also be attractive if they are willing to take the risk of fighting legal battles abroad,’’ said an IT analyst, requesting anonymity.

But that optimism was not shared by potential suitors, still chary about the company’s accounts and liabilities. Indeed, local firms that have expressed interest in acquiring Satyam were guarded in their response.

“We are waiting for more clarity on information that Satyam would provide on its financial situation,” said Tech Mahindra international operations president CP Gurnani.

The sale process will kick off with the selection of a strategic investor through a competitive price bid auction. The board will fix the reserve or floor price. The strategic investor, once finalised, can acquire up to 31% of Satyam’s share capital through a preferential allotment and the balance 20% through an open offer. The open offer will be made at the same share price as the price paid by the investor for the subscription of newly-issued equity shares.

If the investor fails to acquire 51% through the open offer, he would have the right to subscribe to more newly-issued equity (or a second preferential allotment). This would, however, not be followed by an open offer.

Rough calculations show that the investor could infuse around Rs 1,212 crore of capital if the price for the preferential allotment is Rs 40 per share. If shareholders subscribe to the 20% open offer fully, the investor would have to pay them around Rs 780 crore. Sebi has already eased pricing norms for the proposed preferential offering in Satyam. “The current M&A framework was not adequate to deal with an incident like Satyam and hence Sebi amended the take over regulations,” Sebi chairman CB Bhave said at a conference in Mumbai.

The regulator has imposed a few conditions, including a three-year lock-in stipulation to prevent frivolous firms from bidding for the beleaguered software firm whose founder B Ramalinga Raju admitted to a perpetrating a Rs 7,000-crore financial fraud. An investor who buys into Satyam will not be allowed to sell equity shares for three years from the date of the acquisition, though it would able to subscribe for additional equity shares. Qualified investors are expected to have total net assets in excess of $150 million.

The NYSE-listed Satyam does not, however, intend to register any securities in the United States or to conduct a public offering of securities in the US. “The bidding process has to start as early as possible as many clients have left Satyam. A delay in the process could lead to the company losing many more clients thereby eroding the overall valuation of the company,” said Apurva Shah, head (research), Prabhudas Lilladher.

According to an IT analyst, the bidding process approved by Sebi has provided a level playing field to all players. “The open bidding process does not favour anybody in particular irrespective of whether the potential bidder already holds some stake in Satyam or not,” the analyst said.

Sebi’s approval comes after the Company Law Board (CLB) authorised the Satyam board to make a preferential allotment of equity shares to a strategic investor and raised the company’s authorised capital to Rs 280 crore from Rs 160 crore or to 140 crore shares from 80 crore shares.

Of the authorised capital of 80 crore shares, Satyam has already issued 67.3 crore shares. A strategic investor who acquires 31% of the stake will have 30.31 crore shares of the company. He will also get another 19.54 crore shares, if the 20% mandatory open offer is fully subscribed to by shareholders, taking the total number of shares to 49.85 crore.

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