Published January 10, 2009

Satyam ripe for takeover as rumours swirl

Talk of major job cuts and suicide bid; KPMG chief doubts Raju story

By AMIT ROY CHOUDHURY

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THE Satyam saga weighed on the Indian bourse and hit the rupee yesterday while the stock took another hammering on the Bombay Stock Exchange (BSE), opening up the possibility of a takeover of the company.

While all eyes are on the crucial board meeting that is scheduled for today, the Indian media yesterday buzzed with reports that the Satyam CFO, Srinivas Vadlamani, who has submitted his resignation, had attempted suicide.

However, a Satyam spokesman told BT that there was no truth to the rumour.

Another major story doing the rounds was that Satyam may axe as many as 10,000-15,000 jobs at the end of January in a desperate attempt to reduce costs. It was also reported that employees had received emails saying that the company would hold back staff salaries for two months. A company spokesman denied knowledge of such emails though employees told the Indian media that they had received them.

"It's most likely that Satyam will cut 10,000 jobs next month as the company is left with no cash to pay the salaries," said recruitment firm Headhunters India. The minimum outgo on salaries is estimated at 5 billion rupees (S$150 million) a month.

Headhunters India CEO Krish Lakshmikanth told reporters that till Tuesday evening, there were about 7,800 Satyam employees who had posted their resumes on job sites and by Wednesday afternoon, the number had risen to 14,000.

Indian IT industry body Nasscom yesterday said it had asked its recruitment team not to poach anybody from Satyam.

'As of now, the priority of Nasscom is business continuity. The company (Satyam) is in the middle of a crisis. All the employees have been working on projects. To continue the projects, they need people,' a top Nasscom official said. Infosys Technologies, India's second-biggest IT company, made it clear that it would not poach any employees from Satyam.

India's Federal Minister for Corporate Affairs Prem Chand Gupta said yesterday that the government has seized Satyam's books of accounts. An eight-member team has already been rushed to Hyderabad to investigate the accounts of Satyam and its eight subsidiary companies, he said.

The scandal pushed down India's benchmark stock index by 1.9 per cent while the rupee weakened 1.3 per cent against the greenback to 48.98 rupees per US dollar on concern that the scandal might lead foreign investors to sell Indian equities.

Satyam's disgraced former chairman, B Ramalinga Raju, remained out of sight while his lawyer claimed that he was in touch with him.

Meanwhile, a Press Trust of India report quoted accounting firm KPMG as saying yesterday that it doubted the veracity of the confessional letter written by Mr Raju. 'It defies logic - one is not sure whether there is much more to it than is written in the letter and whether the letter contains all the facts,' PTI quoted KPMG COO Richard Rekhy as saying. It is too simplistic to believe that Mr Raju could have pulled off the scam all by himself, he said. 'It requires a whole battery of people to advance those accounting entries and credit those because you have to involve other people as well, like bankers, to get those certificates,' he said.

When asked whether Mr Raju might have siphoned off funds and be admitting a lesser crime now, he said it was quite possible but that would be known only after investigation of the group's companies.

Mr Rekhy said the investigation of Satyam companies should be done in such a way that it should not hamper the business of the IT major. He emphasised the need for an auditor oversight agency.

With the Satyam share price taking another huge hit yesterday - down 40.3 per cent at the close of trading - analysts believe the company has now become a ripe target for takeover.

IT research firm Ovum's senior VP, David Mitchell, noted that in the short to medium term, the hugely deflated valuation of Satyam is likely to make it vulnerable to takeover. 'Even before the news of these corporate governance issues, there was open market speculation that Satyam was either looking to bulk up through acquisition or that it would be at the core of a merger with rivals of similar scale,' Mr Mitchell noted.

He added that Indian software companies MindTree, HCL Technologies and Tech Mahindra have all been mentioned in the rumours - 'although the reality of this gossip is currently impossible to gauge'.