The Hindu Business Line : iGate eyes taking over parts of Satyam

iGATE Inc is in the fray to take over parts of the beleaguered Satyam Computer Services. Speaking to Business Line, Mr Phaneesh Murthy, CEO, iGATE, said, “Employees and customers of Satyam are thinking in terms of hours and days. The new Board there is thinking in terms of weeks.”

Asked what stage negotiations have reached between iGate and Satyam, Mr Murthy said, “It has cooled off now. I sent in the proposal two weeks ago. I am still waiting to hear from the new board of Satyam.” He expressed concern that Satyam’s clients are going away and employee morale is slumping.

Elaborating, he said, “Satyam needs two things now: A new management and some funds. The existing management may have to be cleaned out, since there are allegations of insider trading and all that.” He explained that there was no time for a new CEO to come in, appoint a new team and get things going. “A merger would bring in some stability (with an existing management taking over),” he said.

He said he was in touch with a couple of private equity (PE) players to bring in cash. “Either of them would have no problems if the cash required went up to about $500 million.” But, he clarified, anything in the range of “$ 1.5 billion to $ 2 billion would be of concern.” He did not disclose the names of the PE entities.

Mr Murthy said, “I believe that the liabilities Satyam has would be in the range of $1.2 billion to $1.5 billion. So, if the management sold parts of Satyam to different vendors then, suitors like us would be taking the assets and not the liabilities.”

What would it mean?

What would such a merger mean for iGATE? “It would put us in a different league. If the combined entity could rake in beyond $1 billion in annual revenues, we would become more competitive.” He said that it would put his company in a “fairly dominant position in some verticals such as manufacturing and as a strong ERP player.” iGATE, which delisted its subsidiary iGATE Global Services from the Indian stock markets about a year ago, recorded revenues of $218.8 million for 2008.

According to him, “The Indian political system is not geared to be a catalyst for quick decision-making, as the US political system did for the banking industry there. Ideally, the new Board should look at quickly selling parts of the company. The longer they wait lesser the reason for suitors to come on board.”

Why did iGATE put in a bid so soon (after Satyam’s former Chairman, Mr B. Ramalinga Raju, admitted to fraud on January 7 this year) without knowing what it could get into? Mr Murthy said, “When I took over at iGATE in mid-2003, it had a complicated financial structure. The group comprised some 38 companies with 1,600 different contracts for some 2,200 employees. Now, we have a clean structure and balance sheet; and one employee contract for 6,800 employees. Having changed this company, I have the appetite to take on something of this magnitude.”