Hyderabad/Mumbai : Shares of Satyam Computer fell sharply by over 26.53 percent though it called off the proposed acquisition of promoter group companies Maytas Properties and Maytas Infra at a cost of $1.6 billion. The scrip was trading at Rs.166.40 around two hours after opening Wednesday, having closed at Rs.226.50 Tuesday.
In a statement minutes before the financial markets opened in India Wednesday, Satyam – India’s fourth largest software services provider – said that it had decided not to go ahead with the deal in the light of feedback received from the investor community. But analysts said investors had lost confience in the company overnight.
“We have been surprised by market reaction to this decision even though we were quite positive about the merits of the acquisition. However, in deference to the views expressed by many investors, we have decided to call off these acquisitions,” said Satyam chairman B. Ramalinga Raju.
Tuesday, after the markets had closed in India, the company had announced that it was acquiring Maytas Properties for $1.3 billion (Rs.62.28 billion) and taking 51 percent stake in Maytas Infra for $.0.3 billion (Rs.14.37 billion).
Both the firms were promoted by sons of Ramalinga Raju.
A key financial market abroad had reacted strongly to the deal. Satyam’s American Depository Receipts (ADR) listed on the New York Stock Exchange fell by over 50 percent from $12.50 to $5.70 Tuesday. The company reportedly lost over $2 billion in 60 minutes.
Though the company has reversed its decision, analysts said the move had already rattled the confidence of investors and raised concerned on how the company would manage its cash reserves of over Rs.50 billion.
An analyst said the development might see some investors dumping Satyam shares to invest in other IT firms. The company’s image might also take a beating in the eyes of foreign investors.
The deal dealt a blow to Satyam’s 210,000 shareholders, as a majority of them felt that the deal was unethical and aimed to bail out firms owned by Ramalinga Raju’s sons. They said the company grossly overvalued the real estate and infrastructure firms, especially at a time when the two sectors were not in a good shape.
They were not convinced by his argument that the acquisition would help Satyam diversify its business and tap the growing opportunities in infrastructure and real estate sectors.
Maytas Properties is run by Rama Raju, the younger son of the Satyam founder, and Maytas Infra by Teja Raju, the elder son. Both firms are based in Hyderabad.
Maytas Properties, an unlisted company, is building IT Special Economic Zones (SEZs) and integrated townships in Hyderabad. It has a land bank of 6,800 acres including 500 acres in Hyderabad.
Maytas Infra, which was listed last year, is into power, roads, ports and airports. It recently bagged the Rs.121.32 billion Hyderabad metro rail project.
Since the company is not in a position to raise such huge capital, some analysts feel that the deal was to ensure that the project is executed with the help of the huge cash reserves of Satyam.
The awarding of the contract to Maytas had also sparked a row. The company not only refused to avail Rs.23.63 billion or 20 percent of the project cost under Viability Gap Funding (VGF) scheme from the Indian government but also promised to pay Rs.303.11 billion to the Andhra Pradesh government over the concession period of 35 years. It even paid Rs.110 million as advance while signing a concession agreement in September.
The 71-km metro rail project is being taken up on build, operate and transfer (BOT) basis in public private partnership (PPP) mode.
Maytas Infra reported a turnover of Rs.16.37 billion during 2007-08. It earned a a net profit of Rs.996.4 million.
Satyam posted sales of Rs 81.37 billion and net profit of Rs 17.16 billion during the last fiscal. At the end of September, the IT firm had cash and bank balances totalling Rs 53.13 billion.