Indian IT supplier Satyam 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.
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."
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.