Indian IT supplierSatyam is up for sale,but who will
buy the company that has been shaken by an accounting fraud that
went on for several years unnoticed.
Will a European, US or Japanese IT supplier dip their hands in
their pockets and pick up a bargain? Or will the fraud and
uncertainties related to Satyam put them off?
The bidding process for the company started today, with
applications of interest requested to be in by Thursday March 12.
The company then requires more detailed expressions of interest and
proof from bidders of available funds to the value of $290m by 20
March.
Satyam has a good reputation from a service delivery point of
view, it has a large number of highly skilled workers and boasts an
impressive list of customers. But bidders could be limited as a
result of the company's involvement in a $1bn accounting fraud.
Former chairman B Ramalinga Raju admitted that he had falsely
reported the company's results. This left the company
short of cash and its customers short of confidence.
IBM
Phil Morris, European managing director at sourcing consultancy
Equaterra, says his money is on
IBM buying Satyam. He says Satyam's delivery capability is its
main attraction. "It would position IBM spectacularly for service
and delivery in India."
The bidders will not see the full audited accounts, but
shortlisted bidders will be given access to certain business,
financial and legal diligence materials. They will have to sign a
non-disclosure agreement to qualify for this.
Robert Morgan, consultant at Hamilton Bailey, believes Western
firms will be put off by the fraud and its possible
repercussions.
"I cannot see an IBM or any other global supplier taking it
seriously. I think they would like to buy Satyam, but the
possibility of action from shareholders will stop any Western
company buying it."
Morgan believes Satyam will go to another Indian firm because
they are more used to how Satyam is run. "The Indian companies will
take it on trust because they are owned by families, rather than
shareholders."
Mark Lewis partner and head of outsourcing at law firm Berwin
Leighton Paisner, says whichever company acquires Satyam, whether
Indian or not, will face the same legal threats. "There are already
two legal claims against Satyam by shareholders." He said the
company that buys Satyam may have to ring-fence good business from
liabilities."
Morris says the buyer should negotiate clauses in any contract
to take the risks away. "They could get the Indian government to
underwrite it."
Fujitsu
Andy Gallagher, consultant Compass Management Consulting, says
Fujitsu could be a potential buyer. "There are a few contracts in
the UK that Fujitsu has worked on with Satyam."
He says Fujitsu would not have a problem buying Satyam,
providing it knows everything before it buys it. "One thing you can
be sure of with a Japanese firm is that the due diligence will be
extensive.
"They know they would be buying damaged goods, but if the price
reflects the full extent of the damage, it is OK. The problem with
the Satyam case is that nobody knows the full extent of the
damage."
Duncan Aitchinson, head of Europe at sourcing consultancy TPI,
says now is not a good time to be buying or selling anything
because of the recession. "I suspect there will be fairly broad
interest, predominantly from firms with an Indian heritage."
He adds that Satyam's reputation as a supplier of IT services is
not in doubt. "I do not think there are any suggestions that Satyam
is anything other than a good firm from an operational
perspective."
Satyam will be acquired, but by who is still a question that few
commentators will commit to answering. The company that eventually
buys the company will pick up a wealth of skills and customers, but
it may also be buying unknown skeletons in the closet.