Satyam Computer Services has found a new home in Tech Mahindra. It will pay Rs 58 a share, or a premium 23% premium over Friday’s close, to acquire a 31% stake in Satyam. That speaks for Satyam’s value even after all the fudging of books or for Tech Mahindra’s desire to acquire Satyam. Either way, it’s an outcome that will please Satyam’s shareholders, board and the government itself. The shareholders got a good price, the board has managed the sale process without any glitches and the government would be happy that it remains in Indian hands.
Satyam Computer’s valuation: Satyam Computer has been valued at Rs 5664 crore or $1.1bn. If one assumes actual revenues of about $1.2-$1.5bn, compared to reported revenues of $1.8bn then its price to sales valuation will be between of 0.9-0.7 times. The valuation seems fair, considering Satyam’s image problems, its liabilities–known and unknown, and funding requirements. Also, the company has debt on its books now.
The combined entity: Tech Mahindra’s FY09 revenues will be in the range of Rs 4,600-4,700 crore, if we add to that Satyam’s estimated Rs 6,000 crore revenues (lower end of the range), then the combined entity’s size will be Rs 10,600 crore in revenues. Estimating profits, however, is difficult given the issues surrounding Satyam’s financials. That will have to wait for the restated financials. It is now among the top listed software companies in India, just above HCL Technologies and below Wipro.
Way forward: The first task facing the new buyer, after taking over operations will be to restore confidence, among employees and customers. Investors (from both companies) will keenly await its outline of how it will take the business forward, how it plans to integrate the two operations and how will it chart growth. Initially, the Tech Mahindra stock jumped by 25% to Rs 400 but fell later and closed the day with a 12% gain. Satyam’s shareholders bumped up the stock by 3.6%, this seems more to do with the fact that the open offer is likely to be fully subscribed. Since only 20% will be accepted the rest will be refunded. Here is the press release on the Satyam sale.