Forrester tells Satyam clients to expect no deal

Written by Corporate Bureau | New Delhi | Updated: Apr 7 2009, 14:33pm hrs
SatyamLack of financial data and unknown legal liabilities of Satyam could see the deal falling through.
A week before the government-appointed board of Satyam Computer Services opens the financial bids for a 31% stake in the company, IT consultancy Forrester Research said the lack of financial data and unknown legal liabilities of Satyam could see the deal falling through. The firm has advised Satyams clients to keep their alternative plan ready.

In a report released on Monday, Forrester said there is a risk that the deal falls apart and Satyam goes back to square one. The bidders wont have access to the companys full financial data, and the deal is happening under the shadow of the risk of class action suits and litigation in the US as well as a series of financial and legal challenges in India.

The report said most bidders Forrester spoke to were concerned about the unmitigated risk and the unavailability of any indemnification for the successful bidder. Based on conversations with prospective bidders, we believe that some of the key bidders will exit discussions quickly, it said.

Also, for clients of Satyam, the sale of a majority stake may not ring the end of insecurity. According to the report, titled Satyam Uncertainty-Phase 2, to protect their own interests and ensure continuity of service, clients need to accelerate finalisation of their Plan B and keep a close watch on which firm buys Satyam to decide if and when to pull the trigger to shift to that Plan B.

Citing Larsen & Toubro and IBM as front-runners in the race for acquiring Satyam among the eight bidders that are in the fray (according to its research), the report has raised some key questions like bidders ability to arrange for funds, which is between $600 million and $800million, to buy 51% equity. It said that L&T will have an advantage in service overlap and IT experience, its corporate reputation, ability to manage mergers & acquisitions, along with its relationships in government agencies, will make it the most likely winner. According to Forresters analysis, foreign firms will score high on clients corporate governance questions as most of these firms are headquartered in the United States, it said.

The report discouraged PE investment, as an investor-run Satyam means perpetual clouds of potential sale. While PEs can surely pull off the deal commercially and even retain Satyams independent status, clients will lack confidence in this group, it said.

Meanwhile, three more employees of the company were arrested by CBI on Monday, including its vice-president, finance, G Ramakrishna. We arrested three employees last night who designed the mechanism for the fraud and they were involved in preparing fake monthly bank statements and other documents, said VV Lakshmi Narayana, DIG, CBI.

D Venkatpati Raju and Srisailam, who also work in the finance department, are the two other employees who have been arrested. During the questioning by a two-member, high-powered ICAI team on April 5, Satyams former CFO Vadlamani Srinivas had mentioned G Ramakrishna.