Buying Satyam May Only Interest Smaller Indian Outsourcers

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Large multinational services companies may not be interested in buying a majority stake in ailing Indian outsourcer Satyam Computer Services, according to analysts.

Typical bidders for the stake are likely to be small and medium-size Indian outsourcers looking for access to Satyam's customers, said Siddharth Pai, a partner at outsourcing consultancy firm, Technology Partners International Inc. (TPI).

Some large multinational services companies may have been interested earlier in a stake in an Indian outsourcer as a way to get access to an organization with a lot of skilled manpower, Pai said. But most of these companies now already have large operations in India, he added.

IBM, for example, is not considering a bid for Satyam, according to a source close to the situation.

Market and media reports have suggested that IBM may be one of the bidders for a majority stake in Satyam. IBM does not comment on speculation, a company spokesman said.

IBM is estimated to have over 80,000 staff in India, which includes a large number of staff delivering services to global customers. The company has made India a key component of its strategy to deliver services to customers from multiple and low-cost locations.

In 2004 it acquired Daksh eServices, a business process outsourcing company in Gurgaon near Delhi, with an eye to expanding services delivery from India.

"I would be very surprised if at this point any of the large multinational services companies or large Indian outsourcers were to think of acquiring a stake in Satyam," Pai said.

Satyam announced Monday a competitive bidding process for a 51 percent stake in the company. While 31 percent of the stake will come from the preferential offer of new equity, the winning bidder will in line with Indian regulations have to make an open offer to other shareholders for the remaining 20 percent.

Interested bidders have to register their interest online with the company by 5 p.m., local time on Thursday, Satyam said. They will then receive a RFP (request for proposal) from the company and be asked to submit a detailed expression of interest by Friday.

Satyam was plunged into a crisis after its founder, B. Ramalinga Raju said in January that the company's profits had been overstated for several years. The company's financial results have yet to be restated, which is likely to be a large concern for bidders.

The Indian outsourcer is also facing class-action suits from investors in the US.

Some Indian companies have said that they will not bid unless all the information on Satyam, including the financial results, is made available.

"It would not make sense for our company to invest in Satyam, about which there is uncertainty about the number of staff on its payroll, the finances, and the financial impact of the suits in the U.S.," said an executive of a medium-size outsourcing company on condition of anonymity.

The risk involved was also a factor in IBM's decision not to bid for Satyam at this point, according to a source.

Satyam said that some information relating to its financials and the company's business will be made available to short-listed bidders, but it has not outlined the process by which the bidders will be short-listed. It is also unlikely that bidders will have access to full financial information on the company, pending the revision of the accounts, analysts said.

In the absence of complete information, bidders may make nonbinding bids until they have access to the detailed financials and other information on the company, Pai said.

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