Tech Mahindra taking over Satyam Computers

“Tech Mahindra” was declared the highest bidder and winner to acquire “Satyam Computers” on 13th April 2009. The decision was upheld by the Company Law Board (CLB) on 16th April 2009, paving the way for completing the most high-profile acquisition in recent times.

Tech Mahindra will acquire Satyam using a special purpose vehicle, “Venturbay Consultants”, which will buy a preferential equity issue of 31 per cent of Satyam’s equity capital, followed by a further acquisition of 20 per cent through an open offer to existing shareholders. Tech Mahindra will have to pay roughly Rs 2,900 crore for the 51 per cent stake.

As part of the bidding terms for Satyam, Tech Mahindra is locked into the acquisition for three years, though it may be allowed to raise more equity if so required. Satyam needs cash for operations, and some of the money that pays for Tech Mahindra’s stake will reduce the pressure on operational finances.

But the bill may not stop at the Rs 2,900 crore that will pay for the acquisition; there are still the lawsuits, including class action suits in the US courts that may require Tech Mahindra to have more money in its war chest. Even using a conservative estimate, that may be another $500 million or roughly Rs 2,500 crore.

To pay for the acquisition, Tech Mahindra officials have said that they have about Rs 700 crore in internal accruals; the company is reported to be in the process of raising another Rs 600 crore through a four- to five-year bond issue. “Kotak Mahindra Bank” is also said to be advising the company, and helping put together a consortium of lenders to enable financing of the acquisition.

“Infosys” and “TCS” are the co-bidders who missed the take-over of Satyam. Mr. N.R. Narayana Murthy,the Chief of “Infosys Technologies” who had called ‘Satyam’ “tainted”, expressed relief that employees of Satyam could now breathe easier. Mr.S. Ramadorai, CEO of “Tata Consultancy Services/TCS” echoed the sentiment, saying that things could now move on.