My nautanki Gang :P
L-R vishal, maithilee, ishan, me, and pooja...the sketcher :)
Sunday, May 23, 2010
...A 1.6 BILLION DOLLAR QUESTION
Nobody takes shareholders for a ride-that's the message thta's gone out loud and clears to the owners and promoters of SATYAN COMPUTERS, one of india's biggest and formidable IT companies. A corporate fiasco that began as little as a day ago has ended abruptly with the Board of Satyam throwing in the towel against a vastly growing majority of their own shareholders. satyam's decision to acquire MAYTAS INFRA LIMITED was a very difficult decision to swallow for the shareholders. questions were asked about the need of the acquisition. more importantly, how exactly was the company justified in spending a lot of money on a family owned company?
satyam knew that they would not in any way have it easy in acquiring Maytas-an infrastructure company owned and operated by members of the same family that also runs Satyam computers.Satyam did in fact play a safe and announced the Maytas acquisition plan a day earlier late in the evening after the markets had closed because had they done so a few hours earlier the stock would have been hammared.
nonetheless, the stock was hammered anyway and the impact of the announcement had the uppermost management of Satyam in crisis control mode. Satyam's stock listed on the New York Stock Exchange was beaten down by half its market value.
fearing the same reaction a few hours later on the Indian stock markets, satyam's home bourses; the company immediately realized the extent of the damage they had caused and announced that they had decided to drop the plan to acquire maytas.
shareholder oppositon to the maytas acquistion has been eminent for quite a while but their to the company's enforcement was definitely underestimated by satyam.
right from the morning of december 17, 2008 saytam's shareholders; big investment, mutual fund houses and average small investors systematically dumped their shares and continued to do so even after they learnt that the maytas acquisition plans had been cancelled.
there was definitely no need for satyam an IT company to acquire maytas-as infradevelopement company. the fact that it was a family owned company that would cost 1.6 billion dollars to satyam made things worse. if satyam indeed felt the need to diversify into other fields, then many other choices were available.
shareholder outcry has now forced ramalinga raju to roll back the plan for satyam to acquire two firms owned by his family for as much as $ 1.6 billion, but the affair has brought corporate governance in family-run enterprises into focus. even after the reversal of fortunes of the indian IT sector, it is puzzling that the senior management and the board of directors were not able to foresee shareholder reaction to this deal. ramlinga raju had worked over this deal for over a month and few claim that the senior management did not have any idea of what was going on. if the senior management was kept in dark, then the officials at satyam should have at least realized that question would be asked about an IT company buying a real esstate company, especially if they are owned by blood relaives.
according to nawshir mirza, formerly with Ernst & Young, and now an independent director on various Tata group companies, "Even if the articles of association permits a company to carry out an activity and it has never done it before, the company should seek shareholder approval."
furthermore he says "the companies act mandates that a company have "articles of association" that spell the kind of businesses this firm can do. now, most indian companies make it broad enough to cover most businesses. so generally shareholder approval is not needed. yet, if the deal changes the revenue profile of a company should the shareholder not be consulted? " i think the company should. if a company is changing its risk profile the shareholder should be informed especially if the new activity has never been done by anyone in the company. and the way an IT company manages its business is very different from an infrastructure real esstae company."
the question in everybody's mind is whether this was a board decision or a promoter decision. it is not clear at this stage that the independent directors erred. only a proper investigation would show that. there are some reports that a proper vote was not taken.
it's been an episode that has definitely embarrassed Satyam and has once again raised the question of corporate governance. Satyam in fact went ahead and said that they did not even needed shareholder approval to acquire Maytas. it's been this attitude that's led to the fall in their share price.
NOTE This article was written before the Satyam scam was uncovered.
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