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WTF: Satyam buys its mirror image, loses 50% in share price, backs off

Late yesterday Satyam’s founder Ramalinga Raju, who has been looking at the company’s war chest sitting idle when there are good uses of the damn money, decided to take action. The best thing to do, he and his board decided, was to buy companies named the mirror-inverse of Satyam, i.e. Maytas.

For $1.6 billion, Satyam would buy Maytas Properties ($1.3 bn) and Maytas Infra ($0.3 bn) and get into the “infrastructure” space, building ports and roads and buildings and all that. You might wonder why a software and IT company would do this, but Raju’s personal input was helped by the Satyam questionnaire for new recruits:

1. Can you code Java or C# or C++ or indeed any programming language? (Check all that apply)

2. If there is no programming project available, can you:

  • Lay bricks in an orderly fashion
  • Oversee cement blocks
  • Paint a wall (or a ceiling)

(Check all that apply)

Presumably most people had checked all, effectively giving him a multi-skilled workforce, so Raju decided he now had the ability to do what he did with I.T. Services to the Infrastructure space. We don’t currently know what he did with I.T. Services, to be honest, but we’ll assume that he did something.

By a quirk of fate, it turned out that the “Maytas” companies were largely owned by the Rajus themselves.

Maytas Infra is public, and the last price was Rs. 481 – and has 31% owned by the Raju family (actually 36%, of which Satyam’s only buying 31%). Satyam had paid Rs. 475 for that would of course pay higher to other shareholders – Rs. 525 for the remaining 20% (which would be through an open offer). The total cost for this company – which earned a respectable 37 crores in the first half of 2008-09 versus an even more respectable 90 crores for the full 2007-08 – was a decent Rs. 1500 crore or so; a public company after all deserves to be paid a little bit of premium.

Maytas Properties on the other hand was a private company in which the Rajus owned 35%, and whose web site lists helpful questions and answers such as:

3) What are the formalities specified under the Indian Income Tax Law, if any, that one has to complete before or after selling any property, commercial or residential?

You have to obtain Permission under section 230A of the Income Tax Act if the value of the property to be sold is more than 5 lakhs.

Regular readers of the Income Tax Act would know that Section 230A has been removed since 2001. But these are minor errors of course, and no one reads the FAQ anyway, right?

Maytas properties lists a 75 acre SEZ, 2 small projects that are in construction , and a massive 300 acre project called Maytas hill county. The hill county project lists 2500 sq. apartments in far, far, far away land, at the not-quite-going price of 1 cr. (additional charges extra, going by the online site). The business model for all of this is, in my not-at-all-humble opinion, f***ed.

Satyam would take Maytas Properties over completely, paying $1.3 billion, or Rs. 6,500 crores for it. We don’t yet know why, but the fact that a young Raju is the CEO of the company might have helped. It’s not what you do, it’s who you know.

Unfortunately some silly people thought this was not such a good idea, primarily because they weren’t the Rajus. “What the F?” was a thought common in a lot of investors minds; who expressed it by selling-their-ass-off Satyam. The stock ended down 55%, a mindblowing record of sorts for Satyam, especially when the Dow ended UP 4.2%.

View the full SAY chart at Wikinvest

This has been a shocker for Raju, who was like – dude, when Citi can get away with it, when AIG can get away with it, and soon when GM and Chrysler can get away – why not me? This logic was lost on the average investor of Satyam’s ADR, who could see, in the extreme fogginess prevalant in stock investing, the sucker in this deal: them.

Fortunately of course, the Raju’s owned only 8% of Satyam, so the stock fall is not likely to dent their newly found fortunes. Or so they thought, until some folks got really belligerent against the deal, and quoted tax and company laws to hell and back, giving Raju the heebie jeebies of being a Madhoff and not a Citi: the difference being getting away with it.

In consideration of not getting ass-whipped in public, Satyam withdrew the “buyout” offer. So the case is now (sorta) closed, with Raju saying he was “surprised” by investor reaction to the deal, but would withdraw in deference of the fact that they seemed to have at least one brain cell working.

(He’s gotta find out how to fund those stupid 1 crore projects in godforsaken land in some other way now, which is what is “surprising”, I guess – why couldn’t Satyam do that instead? So much easier to just pay him 8,000 crore (or an appropriate percentage) but some random jokers had to put a spanner in the works. )

Note: the tongue-in-cheekness of this post is only surpassed by the incredulousness, if there is such a word (okay, incredulity), felt by the author. WTF?

  • vk says:

    >Hmm.. wonder if Satyam just bought a housing colony for their employees.

    That would make more sense than anything else.. no?

  • vk says:

    >never mind my previous comment… its truly a WTF situation!

  • Anonymous says:

    >Ha Ha!! may be give money to his employees to buy in Maytas Hill county(its bahadurpally office is not that far anyways)!!!

  • madhavan says:

    >now that he’s backed off, is there any reason why you wouldn’t buy a two month futures on Satyam?

  • Manish Jain says:


    Everyone is wrong. I think the Raju family realized the most under utilized segment in india is data centers. so they decided to join these two companies to build synergies around data centers. Of course now that the deal is off, we are left to a pathetic internet existence in India. What vision the Raju’s had for about 14 hours.

  • Anonymous says:

    >From the grape vine I hear that Raju’s son is in big trouble with the land mafia and the political system and owes more than 500 Million in bribes that supported his recent wins including the Hyderabad Metro Project. With elections on the horizon, Raju and his political supporters seem to have come up with a quick way to utilize the billions of cash in satyam’s coffers.. and it back fired..

  • Px says:

    >great observation about maytas
    good to see that foreign invs are not that forgiving of bad managements

    maybe the last anon is right

  • Anonymous says:

    >i think it is to keep managements’ like satyams’ under check we have short selling. shorting a share is another way to express your view. n short sellers sure have whipped satyams’ ass today.
    it was good to see infy and other IT scrips rising and the misadventure of the black sheep not getting rubbed onto these IT bluechips.
    btw, was jus chking jus who sits on the board of this co. n ws surprised (not surprised actualy!!)to read sme VERY respectable including one high profile prof. from harvard and others including one former bureaucrat whereas rest seem to be jus cronies.
    Long Live Short Selling!

  • Kaushik says:

    >I think there is another way to cure this kind of bad managements. Let us through out the existing management along with their cronies right out of satyam. they have very low equity holding anyway and if they are facing a cash crunch in Maytas, can not go in for buying satyam shares. It is a very good opportunity to get rid of lousy mgmt and turn satyam a real board managed company like L&T.

  • mahesh99 says:

    >Board of directors of Satyam:

    1 Mr.B Ramalinga Raju Chairman / Chair Person
    2 Dr.(Mrs.)Mangalam Srinivasan Director
    3 Prof.V S Raju Director
    4 Prof.Krishna G Palepu Director
    5 Mr.Vinod K Dham Director
    6 Prof.M Rammohan Rao Director
    7 Mr.T R Prasad Director
    8 Mr.B Rama Raju Managing Director
    9 Mr.Ram Mynampati WholeTime Dire. & President

  • Anonymous says:

    >Satyam was always in the radar of knowledgeable investors for dodgy corporate governance. Anybody Remember the hugely inflated price at which IndiaWorld was acquied by Sify. I still think that a % of that acquisition cost made its way back to Sify’s “self-promoters”.

    Anyway, now that we are all (hopefully) a little wiser, let us benefit from this episode. As a start, will some good samaritan dig out other boards that these so-called-independent directors (Vinod Dham, Krishna Palepu, Mangalam Srinivasan, M Ramamohan Rao, VS Raju and TR Prasad) sit in? One needs to be extra careful about other companies whose boards these gentlemen and a lady grace.

  • Sharad says:

    >Fantastic blog. It was a no brainer that Maytas would be having some serious stake from Raju family and it was a perfect ploy to siphon off the cash from Satyam. Raju should be prosecuted in my opinion.


    PS: On a lighter note – sometimes an expletive used appropriately does pack a punch.. Like they say a picture is worth thousand words, an expletive is worth pages of explanation

  • Anonymous says:

    >i don’t understand the hullabullo over this Satyam episode. Do you think no other company does it in India? I think the only problem was that Satyam did it in an extremely stupid and straight-forward manner. They should learn a thing or two on these matters from the “two brothers”. Create such a complex and circular structure (of infinite number of holding companies and subsidiaries) and then do such a thing. Nobody and his uncle will then have an idea of what a heist you would have accomplished.

  • Deepak Shenoy says:

    >Anon: The WTF is about how could they do something so obvious? If they had stuff like the usual kinds – routing the transaction through a circular structure etc. only a few people would complain/care (like who bothered about Sify+Indiaworld).

    The problem is such a blatant move. The under-the-table stuff happens all over the globe. This is like Fastow’s transactions with Enron. It was obvious who benefited so people were pissed.

  • Anonymous says:

    >Cant comprehend how this RUBBISH got through the board approval. This could be the begining of the end of Satyam, unless you sack the board and bring fresh blood.


  • Anonymous says:

    >Deepak: I was not disputing you that it was a truly “WTF” event. I was just trying to convey that if such a thing was done by a bigger company (like Reliance which, for that matter, has done far worse things) and in a more convoluted way, our enlightened media and institutional investors wouldn’t have made so much noise. I saw some analyst from Reliance Mutual Fund getting very worked up on one TV channel. Did the same analyst forget his parent company’s infamous IPO of some months ago. My only problem is with the pot calling the kettle black.

  • Deepak Shenoy says:

    >Anon: Gotcha – and literally everyone’s been guilty. But it’s not correct to say just because they have been guilty that they shouldn’t say a word now – I think everyone should say a word about everything, and we should bring all the skeletons out.

    Even in the RPower issue, when I raised the silly issue of why ADAG is being paid by RPower to use the reliance ADAG logo, people told me to shut up. For anyone else who took cudgels about half of Rel Energy’s stake in RPower going to Anil Ambani for 1000 cr. – they must have been cursed.

    The Satyam bit was just beyond comprehension because they only owned 8% of it. Sorta like Enron, where the management let Fastow benefit personally from company transactions. It’s probably ok legally, but it’s totally stupid because once people get to know it’s completely undeniable.

    Even RPower is and will remain in my memory a shady deal, because of that Anil Ambani transaction. I’m nobody – but if everyone were to stand up and scream, things will happen.

  • Anonymous says:

    >The steady price of the stock and its climbing way shows that the investors have faith in the management it seems that the media needed someone for bashing and after Jet airways it was Satyam

  • Anonymous says:

    for yet another view on Satyam.

  • Kulwinder says:

    >I must share a few facts with you and others to reiterate that Satyam still fundamentally sound company:

    1. Satyam has Presence across the Globe (20 Industries ,65 Countries) more diverse than Wipro & INFY. This does happen by accident. This spread helps Satyam in tough economic conditions. Did you know outside India in Asia Pac Satyam revenue are more than any of the Top 3 Indian IT services firm. De-risked Geographic revenue distribution 21% Europe, 17% Asia Pac, 62% America’s. Best present to leverage emerging markets.

    2. Satyam has Mature Practices DWBI & ERP. HCL had to spend over 0.5 Bn to get the ERP skills which we already have. they just save $ 0.5 Bn

    3. Revenues & Net Income have Grown Five-fold over last 5 years. This by sheer hard work by 50,000 people. Not by accident

    4. FY08 was the 5th successive year of >35% Growth in Net Income. Show’s how Satyam have got profits year after year.

    5. 32% revenue coming from New & Emerging vertical : Satyam has diversified and expanded is industry depth.

    6. Deepest Fortune 500 client penetration 185, Total 690 clients. Clients continue to support Satyam in spite of the issues that have surfaced in last 10 days. Company has as many clients as Infosys and strong fundamentals then why worry?

    7. Satyam still has the largest cash reserve to revenue ratio in IT industry as a result of company employees under management direction … why question it now?

    8. Satyam's Client delight index is a 4.5 out of 5, client retention is 98% – clients are an asset – do not loose sight of the fact and do not slight Satyam and management for just one aberration – this is an organization and not just a script traded on the BSE/ NYSE.

  • Deepak Shenoy says:

    >Kulwinder: If a priest murders someone we don’t quite pardon him for his past kindnesses, no.

    And if $1.6 billion – 8,000 crores – looks like “one aberration” I am quite surprised. It doesn’t matter what Satyam is – they broke the trust investors had, and they have to really work hard to get it back.

  • ruchir khare says:

    >Raju is well aware of the weaker stance in the overseas court. Transfering the um to Maytas would help in taking money out of Satyam.
    Although this can be a risky but good bet for the investors too. Satyam is am\n excellent takeover target as promoter stake is low.
    The basic business is intact (except for world bank deal going off which anyways is an older story now).