Satyam bows to investors, drops deal for builders

By Paritosh Bansal and Jim Finkle

NEW YORK/BOSTON (Reuters) - Satyam Computer Services Ltd bowed to investor pressure and canceled plans to spend $1.6 billion to buy two builders, killing the deals just 12 hours after they were announced.

The quick change in plans, which was announced late on Tuesday, came after investors demonstrated their opposition to the deals by pushing shares in India's No. 4 software services company down 55 percent in New York Stock Exchange trade.

Tuesday's unusual turn of events began after the close of India's stock markets when Satyam said it planned to enter the depressed construction industry by buying all of privately held Maytas Properties for $1.3 billion and 51 percent of builder Maytas Infra for $300 million.

Satyam founder and Chairman B. Ramalinga Raju and other insiders hold 36 percent in Maytas Infra and 35 percent in Maytas Properties.

Analysts questioned the motives of Satyam's top executives, saying there was a potential conflict of interest because they hold stakes in both companies. They also said the acquisitions made little sense at a time when technology outsourcing companies are preserving cash to help weather the global economic slowdown.

The company's stock recovered some of its losses after Satyam withdrew the offers, climbing 50 percent in after-hours U.S. trading. But analysts said that Satyam may not be able to win back the confidence of investors.

"The company has lost investor confidence. Rescinding the offer does not restore that confidence," said Janney Montgomery Scott analyst Joe Foresi.

Satyam's shares, which closed down $6.85, or 55 percent, at $5.70 on the New York Stock Exchange, jumped 50 percent in after-hours trading to $8.89. Even after the evening rally they were still down 28 percent from Monday's close of $12.30.