Tuesday, April 14, 2009

Satyam sale

The sale of Satyam to Tech Mahindra is a morale booster, never mind the ifs and buts as to whether the buyer can make a success of the acquisition. For once, the print and visual media were willing to acknowledge the role played by the government in preventing a debacle and arranging a rescue.

It's an amazing end when you think of how things would have ended in, say, the US. The moment the fraud came to light, the company would have gone into bankruptcy proceedings and it would have been embroiled in litigation. In a software company, value comes from intangible assets- the people and the brand- so there's little that investors can claim from liquidation and litigation.

The only hope is to turn the company around under new management and wait for the stock prices to revive. Those who filed class action suits in the US may well find that they may be better off waiting for the stock price to rise instead of trying to claim a settlement from the new management.

In making the decision that Satyam was too important to go under and that it could and should be revived, the Indian government was spot on. It also acted swiftly in putting in place a new board and the regulatory authorities helped by creating a fresh set of rules for takeovers in such exceptional cases. (This was wrongly derided by some as being anti-investor, overlooking the fact that we are talking of a company that was on the brink of a collapse that would have washed out investors altogether).

What can we learn from this episode? One is that government may need to intervene in the case of any systemically important institution, not just those in the financial sector. The second lesson- driven home already by the financial crisis- is that 'leave it to the market' can be sheer nonsense in such situations.


Amit said...

Hello Sir,
I had created a debate "Revised balance sheet of Satyam"(description:Can there be any reason of Satyam for not revealing their revised balance sheet before the bidding?")
So as ur blog is also taking about Satyam. I thought u can give some valuable input.So i request you to give ur suggestion here(in the link mentioned in the name) so that we can know better about this case. looking froward from u.

Adorable Bad Guy said...

I completely agree with you. I can not think of a more expeditious way to resolve the matter.

For once I give it to the government that they made all the right moves. They put in a credible board and the board acted decisively. In a way it also salvaged the image of IT and prevented contagion effect. This is positive intervention and I would give a big thumbs up to our govt

K.R.Srivarahan said...

What has happened so far since the scam became public is really amazing.However, the Satyam saga is still a work in progress.Only time will tell whether TechMahindra will savour or rue its decision.

A question has been raised as to why the revised balance sheet has not been revealed before the bidding.The assumption that the pro-tem Board is aware of all liabilities of the company may be misplaced.There is a saying that in such situations nobody knows which snake is crawling in which pit.

zuko said...

Dear Sir,

What happened with Satyam, if the same happens with a company like Reliance, which runs people's money in the stock market, then what?
Will that news ever be made public?
What would the government have done?
Is a corporate fraud better hidden than unveiled for national sentiments?

treuemax said...

The thing happend with sathyam was really something very very complicated and its really great tech mahindra had bought it...