Satyam poised for management change; Rajus stake goes down

Written by feBureau | New Delhi, Mumbai, Hyderabad | Updated: Dec 30 2008, 07:09am hrs
Satyam Computer Services is now on the block with promoters confirming to BSE that there has been a dilution of their 8.6% stake in the company and three more independent directors quitting its board. The company has appointed DSP Merrill Lynch to present an action plan for for increasing shareholders value at the rescheduled board meeting on January 10.

The possible change in management was welcomed by the market, with the companys shares on the Bombay Stock Exchange closing up 9.41% at Rs 148.25.

In its filing to BSE, Satyam said, the company has received a communication from the promoters that all their shares in the company held by SRSR Holding Pvt Ltd were pledged with institutional lenders over a period of time since September 2006. It is possible that some of the lenders may exercise or may have exercised their option to liquidate such quantum of shares at their discretion to cover the margin shortfall. This would consequently dilute the promoters holding in the company.

With Mondays resignations, the companys board now has five members, in place of nine earlier. Mangalam Srinivasan was the first independent director to quit last Thursday owning moral responsibility for the controversial decision to acquire two promoter-related firms for $1.6 billion. Monday saw resignations of M Rammohan Rao, dean of the Hyderabad-based Indian School of Business who chaired the controversial meet, Vinod K Dham, father of the Pentium chip, and Krishna Palepu, professor at Harvard Business School.

Among other items being taken up for consideration in the board meeting scheduled for January 10, reconstitution of the board will be an important item, said B Ramalinga Raju, chairman & founder, Satyam, in a statement announcing the resignations.

According to an analyst from Emkay Research, Low market capitalisation, high cash balance combined with a likelihood of further reduction in the promoters stake increases the appeal of the company to strategic/financial investors. The agenda for the rescheduled meeting increases the chances of a management change. Interestingly, the appointment of a financial advisor, and not a consulting organisation, points to an increased possibility of management change.

The company will now be the first among the top five Indian outsourcing companies to change hands. Since the new promoter will have to make an open offer, the investors in the company can expect a sharp increase in the price of the scrip. Open offer prices have to be the average of the last six months price of the share.

Although an open offer might limit the free-fall in the stock price, the company needs to take more steps to restore the investor confidence dented by the recent sequence of events. We believe that the companys announcement earlier to consider a stock buyback was a knee-jerk reaction to the falling stock price and now the company is looking to explore all possible steps required to restore the investors faith, said Manik Taneja and Sweta Sinha of Emkay Research.