Satyam: Just What Went Wrong?
Almost three decades ago, India's third-largest IT services provider, Wipro Ltd, successfully diversified from vegetable oils into the IT sector. However, earlier this week when the country's fourth-largest IT services company, Satyam Computer Services [Get Quote], attempted to diversify into real estate and infrastructure to grow its business, it fell flat on its face.
The $1.6 billion acquisitions were supposed to "delight shareholders". At least, that's what chairman B Ramalinga Raju and the board of Satyam believed. However, that was not to be. Irate shareholders forced the board to call-off the deal. They suspected there was more than that which met the eye since Raju's sons were on the boards of both the companies which were being bought -- Maytas Infra and Maytas Properties.
Analysts, too, were rattled with the move, and called for a 'Sell' on Satyam. The share prices of Satyam dipped by 30 per cent on December 17, 2008. Satyam investors lost around Rs 3,400 crore (Rs 34 billion) in the panic selling. Satyam's stock fell 55 per cent on the New York Stock Exchange as well. And questions of bad 'corporate governance' were raised.
Satyam chairman B Ramalinga Raju expressed surprised at the market reaction to this decision but said the board "decided to call off these actions. . . in deference to the views expressed by many investors". However, the decision did not cut ice with investors.
Satyam -- which means "truth" in Sanskrit -- was founded by Raju in 1987. The company employs 52,000 IT professionals across the world. Besides, it has ranked consistently in the survey-based top Employers list. Till last week, it was hailed as the youngest company to exceed the $2 billion revenue mark. Moreover, its quarterly volume and net profit growth figures, too, were perceived to be healthy.
What went so wrong with a company for investors and analysts to almost shun it now?
The crux...
Please login to view the full essay...