L&T seeks management control of Satyam

It’s official now. Engineering giant Larsen & Toubro (L&T) has sought management control of Satyam. In the first official acknowledgment of L&T’s interest in taking over Satyam, the Department of Corporate Affairs (DCA) has said in a note, written in the last week of January, to the finance ministry that L&T Chairman A M Naik has expressed interest in acquiring a sufficient stake in Satyam to take management control. The note quotes Naik as saying that L&T eventually wants to run the company, for which it is in the process of getting internal approvals. L&T executives said they had no comment to offer. Naik, according to the communication, met the DCA secretary on January 20 in Delhi to convey his willingness to acquire Satyam. The communication also details the action taken by the DCA on the Satyam scam. The DCA communication is significant as L&T has never officially acknowledged that it would like to acquire and control Satyam. The company, which increased its stake in Satyam from 4.48 per cent to 12 per cent on January 23 through open market operations merely said it did so to protect its investments by bringing down the average cost of acquisition. There was speculation that L&T may increase its stake to 15 per cent and go in for an open offer. However, the company has been silent on the issue. L&T has been seen by the market as one of the possible bidders to take over Satyam. The others which have shown interest include iGate, Tech Mahindra and HCL Technologies. Although L&T did not want to comment, sources familiar with the developments said the sharp increase in Satyam’s share price would not have taken place if L&T did not emerge as a serious interested buyer and a potential saviour of the company. The sources also said it is difficult to quantify the value of Satyam net of non-existent reserves, non-availability of a reconstructed balance sheet, un-quantified liabilities in the form of class action suits and other claims such as employee benefit provisions, lost key clients and employees and loss of a top management team. On reports of L&T seeking a waiver of open offer pricing norms, the sources said the normal Sebi guidelines for the valuation of an open offer price based on the average price of the preceding six months cannot be logically applied to a company whose promoters perpetuated the biggest corporate fraud in Indian history, and the balance sheet of which included significant assets/margins that are non-existent. The sources said the disintegration of Satyam would benefit some overseas firms who are already soliciting their key client accounts. Indian IT firms have been avoiding doing so till clarity emerges on the government’s and the interim board’s decisions on the way forward.