Rajus to dilute stake in Satyam; will they sell out?

By Shrija Agrawal (VCCircle.com)

Satyam has appointed DSP Merrill Lynch as a merchant banker to review and suggest a plan to increase shareholder value.

With investor groups flagging down Satyam Computer Services' share buyback plan, the management of the fourth largest IT services firm is looking at other options to pacify its shareholders. This includes diluting promoters' stake.

This follows a 40.75% drop in the scrip value of the firm after it did a flip-flop on the Maytas deal, where the firm was to shell out around $2 billion to acquire promoter owned firms in an unrelated business area of infrastructure and real estate development. This proposal was to be taken back after a strong protest from institutional shareholders.

Now the IT services provider has said that it has appointed DSP Merrill Lynch as a merchant banker to review and suggest a plan to increase shareholder value. In the last two weeks, Satyam saw a 40% erosion in its market capitalisation. So what does this mean? It's likely Satyam may sell out.

Global IT services firms, including IBM, Accenture and Cap Gemini, could be suitors for Satyam, according to media reports. Satyam's willingness to dilute promoters stake also makes it vulnerable to private equity firms who are always on the lookout for troubled family run businesses. One factor which could be weighing on any prospective acquirer is that the firm is now available at realistic valuations after the current turn of events.

Satyam has now postponed its board meeting which was to be held on December 29, and said that the management in its next meeting will "consider to increase the size and alter the composition of the board, while effecting a change in the governance structure of the company."

The board meeting would now be held on January 10 to consider, as B Ramalinga Raju, Chairman and Founder of Satyam said, additional strategic options and issues arising from a possible dilution of the promoter's stake in the company

"Satyam takes the interests of its stakeholders very seriously, and we will take whatever steps necessary to reinforce their trust and confidence in the company," Raju added.