Tech Mahindra, the highest bidder for a majority stake in Indian outsourcer Satyam Computer Services, said on Monday that it and Satyam have complementary businesses.
The two companies do not have common clients, Vineet Nayyar, vice chairman and CEO of Tech Mahindra, told reporters in Mumbai on Monday.
Satyam’s government-appointed board announced earlier on Monday that Tech Mahindra, another Indian outsourcer, had emerged as the highest bidder for a majority stake in Satyam. The next step is for the Indian government’s Company Law Board (CLB) to accept the decision of Satyam’s board.
Tech Mahindra, which has BT as a key investor and customer, is primarily into the telecommunications services business, while Satyam has clients in a number of other industries, Nayyar said.
While Satyam earns 75 percent of its revenue in dollars from the U.S., Tech Mahindra’s revenue comes primarily from Europe in UK pounds and euros, he added.
Tech Mahindra however said it was premature to discuss a possible merger of the two companies.
Satyam was plunged into a crisis in January after its founder, B. Ramalinga Raju, said that the company’s profits had been overstated for several years. The company’s accounts are being restated.
As a result of the uncertainty caused by the financial scandal and a subsequent working capital crunch at Satyam, some customers started looking for alternative suppliers.
Tech Mahindra’s bid comes against a background of scarce information on Satyam’s finances, media reports of an exodus by a large number of customers and class-actions suits by U.S. investors. The company took a lot of scenarios into account, and took a very calculated risk in making the bid, Anand Mahindra, chairman of Tech Mahindra said.
Tech Mahindra will be paying 17.6 billion Indian rupees (US$354 million) for a 31 percent stake in Satyam, through a preferential issue of equity. It will also acquire another 20 percent equity through a public offer to other Satyam shareholders.
Tech Mahindra had revenue of $934.7 million in the fiscal year to March 31, 2008.
Satyam’s board said on Monday that the management of Satyam will be transferred to Tech Mahindra after the CLB’s approval of the bid, and the payments are made.
There is speculation that Tech Mahindra may involve other investors, including private equity investors, in the investment company it has set up to acquire Satyam.
Tech Mahindra officials, however, said that the company can finance the transaction from internal accruals and debt.
The move by Tech Mahindra to acquire a majority stake in Satyam may put off clients from outside the telecommunications industry, according to analysts. But some of Tech Mahindra’s key managers have experience in other industries from their previous jobs, Nayyar said.