Satyam: comments on some responses

I notice that outrage over Satyam's abortive deal is not universal:

• Pradosh: wonders whether the media has sensationalised the whole issue
• Anonymous suggests that the seasoned promoters of Satyam would have thought through the merits of venturing into infrastructure.
• On a different note, Gaurav wonders whether fear of being dragged to court in the US was responsible for the deal being called off.

Well, it's always a pleasure to get contrarian views.

To respond to Gaurav first, yes, there does appear to be greater recourse to the law in the US in matters such as these than in India. Here, management can claim- as it has- that it violated no laws: board approval was obtained, norms of inter-corporate investment were adhered to, there was no requirement to obtain shareholder approval, etc. It's a different matter that the government is reported to investigating other aspects such as possible insider trading.

On Pradosh's point about media hype and media pressure, it's worth noting that, according to press reports, Satyam sent out an SMS at 3:45 am on Nov 18 - well before the headlines became available to Indian readers. The Satyam response was based on the hammering of the share in New York. It was not the media response but investor and analyst response that forced Satyam's hand.

Should we give Satyam management the benefit of the doubt, as Anonymous suggests? Well, there are a number of points against the deal:

• No obvious synergies between software and construction/infrastructure.
• Why invest in family enterprises in infrastructure?
• Timing of investment: everybody knows that infrastructure firms are today desperate for cash.
• Valuation: This is dicey at the best of times and these are the worst of times for infrastructure firms. I understand that the valuation rested primarily on the land bank of the two Maytas firms.
  

If Satyam was convinced of the merits of the deal, it should have come up with a proposal, presented it to analysts and shareholders, explained the merits, placed the valuation report in the public domain and sought feedback.

I saw the ISB Dean suggesting on TV that there was no problem with the deal once valuation was okay. What he overlooks is that, given the nature of the deal- transfer of cash from a firm in which the original promoters had a small stake to ones in which they had a large stake- transparency was of the essence.

It's gratifying that a number of high-profile businessmen have come out against the deal (Adi Godrej, Udak Kotak). Godrej went so far as to suggest that we needed more resignations from independent directors. One of the few I remember in a high-profile case is SS Tinaikar, former municipal commissioner of Mumbai, walking out of the Voltas board in the old days.

Still, at the end of it, one cannot resist the feeling that Satyam was a relatively soft target for the media and investors alike. Will they dare to take on bigger names in similar situations?