L&T front-runner for Satyam buy

Institutional shareholders such as Life Insurance Corporation of India (LIC) and ICICI Prudential Life Insurance are supporting engineering behemoth Larsen & Toubro’s move to acquire troubled software exporter Satyam. As the first step, L&T is expected to present a revival proposal before the newly-constituted board of Satyam soon, said informed sources. On Wednesday, L&T convened its board meeting to discuss its nuclear foray and chances of buying Satyam. The board member representing LIC, a major shareholder of L&T, also attended the meeting. However, an L&T spokesperson said Satyam was not on the agenda today. A source, however, said, “L&T is looking to submit a revival proposal for Satyam, highlighting the credibility of the brand ‘Larsen & Toubro’. Traditionally, L&T is an employee-friendly company and that will help retain the Satyam employees. The company's financial strength will also help Satyam raise funds for its working capital.” LIC holds 4.34 per cent in Satyam. After the software company's share price fell in January, the government-owned insurer raised its holdings 1.43 per cent through open market purchases. In almost the same period, L&T Finance also bought 4 per cent stake in the firm. ICICI Prudential Life Insurance holds 2.87 per cent in Satyam, according to the December shareholding pattern. Other financial institutions that have shares in Satyam include Fidelity, Lazard and JP Morgan. Following Satyam founder Ramalinga Raju's confessions to accounting fraud January 7, other major foreign investors Aberdeen and Swiss Finance Corporation sold their entire shareholding in the company. Sources said L&T has not yet approached foreign financial institutions. The engineering giant, however, expects support for its revival proposal from Fidelity, Lazard and JP Morgan. Meanwhile, L&T Chairman A M Naik met the Minister of State in the Prime Minister's Office Prithviraj Chauhan Tuesday in New Delhi and CFO Y M Deosthalee met LIC officials in Mumbai on the same day. “At the current share price of Satyam at Rs 27.75, L&T has lost about Rs 380 crore on a mark-to-market basis. LIC has also faced with the same problem, but the insurer has made its position comfortable by picking up an additional stake at a lower price,” said sources. L&T sees a lot of synergy between the core strengths of the beleaguered software giant with that of L&T Infotech, its unlisted information technology subsidiary. Satyam’s strength is in enterprise resource planning (ERP) solutions, which accounted for 45 per cent of revenues. But other players remain in the fray: "Talks are on with merchant bankers. However, the potential buyers — both foreign and domestic — are waiting to see how bad the news can get. Till now, they have no clue about what's happened with the cash," said an industry source. Among the other interested are Aegis and HCL. Aegis — the BPO arm of Essar Group — has submitted its letter of intent to acquire Satyam's BPO operations. These operations have still not been able to break even, reporting a net loss of Rs 20 crore for the second quarter ended September 30, 2008. "Aegis has earlier acquired firms that might have been in the same position but the company has been able to turn around such operations and the results are there to see. However, the board has to decide and get back to Aegis. Once that is done, only then can one start talking on valuations and other technicalities," said a source close to the development. HCL Technologies has also reportedly shown interest in acquiring Satyam. Like vertical, Satyam's ERP expertise complements HCL's business. The other complementary vertical is engineering design. "It is difficult to talk about valuations as there needs to be a better clarity on the numbers. HCL might try for a bargain," said an investment banker on condition of anonymity. He also said that the recent Axon integration should not pose a problem for HCL, as Satyam's operations are in India.