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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?


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