Shareholder revolt forces Satyam to dump Maytas bid

17 December 2008

Amidst an unprecedented hue and cry, Satyam Computer Services' founder and chairman B Ramalinga Raju has retracted his bid to buy out two group firms engaged in the ailing infrastructure and construction business (See: Satyam Computer to buy out founders' property firms for Rs7,680 crore).

Shareholders have opposed the deal on several grounds. The corporate sector has labelled it as 'unethical' and 'against the interests of the small investor'.

Analysts said the deal was overpriced as it valued the company almost on a par with Unitech, the country's second-largest real estate developer.

Templeton MF, which has always been an active shareholder has come out in the open with its opposition and said that  it will go to any length to prevent the deal.

The amount of money Satyam would pay for this acquisition, would nearly wipe out the balance sheet of Satyam and add on new debt. It has close to $1.3 billion of cash in its books.

According to Indian law, the free reserves of a company up to 100 per cent can be used for acquisitions without shareholder approval.  So while the deal may be legally permissible, it raises serious corporate governance issue.