Column : Apply Plan D for Satyam

Written by P Vaidyanathan Iyer | Updated: Dec 20 2008, 07:47am hrs
The day Satyam Computer Services board decided on a preposterous proposal to milk the cash cow and give nourishment to two family real estate and infrastructure companies, Vadlamani Srinivas, Satyams CFO, said the company did not have a Plan B. The management was cocky and sure that the risk the board tookwithout getting shareholders nodwill pay off. But then, in 24 hours, the company had a plan B for buyback and also a plan C of doling out a dividend to appease shareholders. But, clearly, it is time shareholders think of a Plan Dforcing a management change.

In India, shareholder activism is conspicuous by its absence. Hardly do we come across instances where decisions are forced on companies by individual shareholders, who are disparate. Some of them, I have seen as a young business correspondent sent to cover annual general meetings, do take great pains in annual general meetings where they get an opportunity to ask the companys board tough questions. The chairman and the board, exasperated as they may be, have little choice but patiently listen to long lectures and sit through the cross-examination. I suspect even this breed is getting extinct now. So, the ball is completely in the court of institutional investors.

Mutual funds and foreign institutional investors did slam Satyam for trying to take shareholders for a ride. The stock was battered in India and abroad. But, with over 65 per cent of the shares with institutional investors, they are the biggest losers. Will Satyam or promoter Ramalinga Raju compensate them

Shockingly, the board members continue to justify the deal. After the company called off the deal this Wednesday, I had a chat with M Rammohan Rao, the dean of Indian School of Business who incidentally was in New Delhi. According to him, board members did air their concerns when the proposal was discussed. They were worried how the market would react, but decided not to get an opinion from any investor since it is not correct. From the corporate governance perspective, members expressed concerns on two countsdiversification and valuation, he said. These were addressedunrelated diversification was seen as an effective de-risking strategy and valuation was lower than that done by one of the Big Four accounting firmsand finally the board cleared it. And mind it, the deal was passed unanimously with even governance expert and Harvard Business School professor Krishna Palepu, who was on conference call from abroad, seeing merits in it. Palepu is yet to call back or respond to a mail sent three days ago.

The proposed deal, to my mind, could have been one of the biggest rip-offs Corporate India has seen. For good reasons, I will term it completely unethical for the simple reason that the beneficiary is only Raju and his family. Ramalingu Raju and other key promoters have progressively reduced their stake in the company during the last 3-4 years. Their holding, which was as high as 14 per cent about four years back has almost halved to 8.7 per cent now. Very few companies in India have such low promoter stake. It seems, and is not difficult to imagine that the promoters intended to strip the company of its huge cash surpluses of around Rs 6,000 crore and in the near future completely exit. In Maytas Infra, a listed company, Satyam was to pay Rs 875 crore to buy the promoters stake of 31 per cent. Maytas Properties is unlisted and the entire sale proceeds of Rs 6,240 crore was to go to promoters, Raju and family. Besides, Satyam would have been saddled with debt of Rs 925 crore that Maytas Infra has on its balance sheet. Nothing much is know of the unlisted Maytas Properties.

It is not surprising that institutional investors are enraged. What is surprising is that they are not taking this to its logical conclusion: a management change.