iGATE Pulls Out of Satyam Bidding Process

Fremont-based iGATE has decided not to go ahead with the bidding process for acquiring 51% stake in India's scam-tainted Satyam Computer Services (SATYAMCOMP), based on further analysis.

Talking to CXOtoday, Phaneesh Murthy, CEO of iGATE, said, "While there is no one particular reason, it's the totality of concerns like sliding revenues, unknown margins and large liabilities that made us pull out of the race."

Murthy said, "We know that there are customer exits happening at Satyam. While the value erosion and the extent of liabilities were a concern, it was the totality of concerns that influenced our decision."

The company had earlier announced its participation in the bidding process last week, competing against some of the large Indian investors.

However, our PE fund partner had no role or influence in our decision to pull out. We had prepared our own model of financials and in that model it was difficult to get a reasonable return for any investor, said Murthy.

Satyam has been struggling for survival since January 7, when its founder and former chairman, B. Ramalinga Raju, confessed to filling the company's balance sheets with $1 billion in fictitious assets and nonexistent cash.

March 20 was the deadline set by the government-appointed Satyam Board for bidders to respond to the request for proposals the IT firm had sent out on March 13.

Sources indicate that potential bidders are concerned about the lack of clarity about the financial status of Satyam, as well as the implications of the class action suits and other legal troubles that the company is facing.

CXOtoday

Is IBM also in the race to buy Satyam?

Global IT giant IBM is learned to be leading the list of prospective buyers of beleaguered Satyam Computer Services. If the plan fructifies, IBM would become the largest IT services player in India with a combined employee strength of over 125,000 people.

According to sources close to the development, IBM officials has begun discussions with Satyam board and expressed its desire to acquire a majority stake in the company. Moreover, a team of investment bankers and lawyers from the U.S. and Europe has been brought in to assess the size of the deal and the risks associated with it. It is also believed that IBM has conducted an initial due diligence on some of Satyam's major customers.

Making easy entry for foreign players, Minister of Corporate Affairs P C Gupta had said a week ago that open bids would not be restricted to Indian players. IBM was named one of the hostile bidders for Satyam at the company's meeting in the last December. Apart from IBM, other prominent companies in the race are Larsen & Toubro (L&T), which owns 12 per cent in Satyam, and B K Modi-owned Spice group.

The government-nominated board is expected to invite bids for a 31 per cent stake in the company, but is likely to assure the successful bidder 51 per cent even if it fails to get the additional mandatory 20 per cent from the open offer.

Analysts foresee that if IBM can buy Satyam, that can give IBM the leverage to compete with Indian IT service providers as Satyam has a low-cost structure.

Agencies