Investor Uncertainty Concerns Satyam Customers

The decision by Indian outsourcer Satyam Computer Services to sell off a majority stake in the company to an investor has brought up new uncertainties for customers, according to analysts.

Figuring prominently among the list of uncertainties is that Satyam may not be able to sell the majority stake in the company, said Sudin Apte, senior analyst at Forrester Research.

Even if the stake is sold, customers and the market at large will be very concerned about who wins the bid, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International.

Satyam's board is meeting on April 13 to finalize the winning bidder, according to media reports.

Some potential bidders have already backed out, citing among other reasons the absence of full information on the financial status of the Indian outsourcer.

Satyam's accounts are being restated after a financial crisis in January when founder B. Ramalinga Raju said that the company's profits had been inflated for several years.

There is considerable concern among bidders about the lack of information, as well as about the financial impact of class-action suits filed by investors against Satyam in U.S. courts, Apte said.

Forrester in a report on Friday recommended measures that customers should take to evaluate the impact that different categories of investors may have on Satyam.

Each of the bidders offer their own "set of pluses and minuses that clients must consider," Forrester said, while also cautioning that clients need to have an alternative plan ready.

The bidders have not been disclosed by the Satyam board, but some Indian companies, including engineering and construction firm Larsen & Toubro, have indicated their interest in a majority stake in the company.

Multinational services companies like IBM and Hewlett-Packard and private equity firms are also interested in a stake in the company, according to various media reports. Sources at IBM and HP however said in private that the companies are not interested in investing in Satyam.

The other bidders are said to be primarily Indian companies, including IT services companies.

A bidder with a track record in IT services will help to reassure Satyam's customers and the markets, Pai said. The size of the buyer will also be a consideration, he added.

Private equity investors are not seen as long-term investors in the business, Pai added.

Customers polled by Forrester also said they would feel comfortable if a large IT services company, with experience in industries in which they operate, were to invest in Satyam, Apte said.

There is concern that if a mid-size Indian services company were to invest in Satyam, it may not have the expertise to manage a large, multibillion dollar business, Apte said.

Customers may not be too comfortable if a private equity firm buys a majority stake in Satyam, as it will not bring expertise in IT services, Apte added.

Among the Indian bidders, L&T may be found suitable because the company has an IT services business that has a strong overlap in services lines with Satyam, according to Apte.

Customers will also be keeping an eye on the corporate governance record of the investor, and its ability to operate within the Indian regulatory framework, he added.

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