The Hindu Business Line : Satyam to buy Maytas Infra, Maytas Properties for $1.6 b

Hyderabad, Dec. 16 Satyam Computer Services, India’s fourth largest IT services provider, has proposed to acquire Maytas Properties and 51 per cent stake in Maytas Infra for a consideration of $1.6 billion (about Rs 8,000 crore).

The move by Satyam, which is sitting on a cash pile of Rs 8,235 crore, has taken the market by surprise as the IT major preferred to acquire infrastructure companies and not an IT company.

Stating that it is part of its plan to de-risk the core IT business in times of recession, Mr B. Ramalinga Raju, Chairman of Satyam, said the combined entity would help face the challenging environment and uncertainty in the market.

Satyam would acquire 100 per cent stake of promoters in Maytas Properties, a private entity, with immediate effect for $1.3 billion. With regard to Maytas Infra, Satyam would buy 31 per cent from promoters (at Rs 475 a share) and 20 per cent from the public at (Rs 525).

Family relationship

The deal raised the eyebrows of analysts as both the firms are led by the sons of Mr Raju. While Maytas Properties is headed by his younger son Mr B. Rama Raju (Jr), Mr Teja Raju, the elder son, leads Maytas Infra. Of the proposed Rs 8,000-crore buyout, Rs 6,500 crore would go to Maytas Properties alone.

Answering questions on these issues, Mr Ramalinga Raju pointed out that the companies in question had always maintained an arm’s length since their inception.

Valuation

Mr Srinivas Vadlamani, Chief Financial Officer of Satyam, said Maytas Properties owned a land bank of 6,800 acres in top cities with a potential of developing 245 million sq ft.

“Compare this with DLF’s land bank of 10,000 acres,” he said, justifying the valuation for the firm.

With regard to Maytas Infra, he said the valuation was based on SEBI guidelines. It holds an order book of Rs 11,554 crore, including the Rs 12,000 crore metro rail project.

On the concerns that Satyam’s focus on IT would come down, Mr Raju said the company would not dilute the service offerings.

“We expect that the contribution from IT and infra businesses would be 50:50 in the next 4-5 years,” he said.

Rationale

Asked why the company chose to buy into an unrelated activity, Mr Srinivas said the company saw no reason in buying another IT company in the depressed conditions.

Indicating the rough weather the IT industry is facing and the promises infrastructure sector offers, Mr Raju said the two companies would be helped by Satyam’s ‘soft’ skills in infrastructure vertical.

Maytas Infra closed down at Rs 485.30 against the previous close of Rs 497.25 on the BSE.

Maytas Properties is a realty company, while Maytas Infra is focused on road, rail, ports, airports and power projects.