The deal, to be completed in a two-step transaction, witnessed Satyam Infoway buying 24.5 per cent in IndiaWorld at $28 million. Satyam has the option to purchase the outstanding shares at $87 million any time prior to September 30, 2000. It has already placed a non-refundable deposit of $12 million to exercise the option.

Responding to a query on why the staggered mode of payment, Ramaraj said, "It is primarily an issue of managing cash flows." The $28 million cash payment for the 24.5 per cent stake is being funded from the proceeds of its $87-million ADR issue.

Satyam will now have to look at avenues to raise the remaining quantum of funds that will go into completing the transaction. "I'llhave to think about that a bit," was Ramaraj's reaction.

Satyam has reportedly been talking to various smaller regional players offering content on the Internet over the last couple of months. The ostensible reason being to buy them out and with it the traffic that frequents the web sites.

With this acquisition, however, that search has come to an end for Satyam. Ramaraj said that coupled with the kind of traffic the IndiaWorld portal attracts, "We now have an overpowering presence with 26 million page views per month."

Satyam is the largest private Internet Service Provider (ISP) and claims a subscriber base of 100,000 people across 30 cities in the country.

IndiaWorld has been in the business for over five years now and managing director Rajesh Jain said, "It has been a profitable business for the last three years." IndiaWorld reported a pre-tax profit of Rs 27 lakh on a turnover of Rs 1.3 crore during the last fiscal.

IndiaWorld, has over the last couple of years, built a formidable bouquet ofportals that cater primarily to an NRI audience. Its offering range from news (samachar.com) to sports (khel.com) and recipes (bawarchi.com).

Advertising revenues on these portals aside, IndiaWorld's main source of revenues has been offering Internet based-solutions to corporate clients.

Incidentally, advertising revenues in India on the Internet totalled a measly Rs 6 crore last year which was split essentially between four players (including IndiaWorld).

With this acquisition, it becomes apparent that Satyam Infoway is adopting the America Online (AOL) model which has over the last two-odd years met with devastating success on the American stock markets. While on the one hand it provides Internet access, it offers content and the flexibility to conduct online transactions.

The Satyam Infoway American Depository Receipts had already appreciated by about $26 to $106 last Friday ahead of the deal.

On Monday, trading in the American Depository Receipts resumed with a $ 4 jump, followed byprofit-booking which brought it down to the $ 103.625 level. Ernst & Young has done the valuation for the transaction, while DSP Merrill Lynch were advisors.

INSIGHT
Buyout to improve Satyam's valuations
The Satyam Infoway-IndiaWorld Communications deal marks the beginning of the Internet frenzy in India. Satyam Infoway, which raised about $87 million through its recent ADS offering, is willing to spend $115 million in order to acquire IndiaWorld. It is not that IndiaWorld Communications' web sites, the most popular ones being khel.com, khoj.com and samachar.com are not replicable easily. Satyam Infoway could have put up equally good sites if it wished to.

But IndiaWorld's brands already enjoy a high equity and gaining the number of hits that these sites get would have taken a long time. Also, being flush with funds, Satyam Infoway can afford to shell out close to Rs 500 crore for the company rather than develop its own properties and wait for them to become popular. The acquisition of over13 million pairs of eye-balls should help to improve the valuations of Satyam Infoway.

Sarad Saraf