‘Satyam should have gone for a share-swap instead of cash pay out to the promoters of the target companies.’

K.V. Kurmanath

Hyderabad, Dec. 17 Satyam Computer Services might have called off the deal to acquire Maytas Properties and Maytas Infra for $1.6 billion, bowing to widespread resentment from investors. But the issue raises several questions related to corporate governance of listed entities.

The issues relating to conflict of interests, role of independent directors and due procedures in taking important measures have come to the fore, analysts say.

“The whole episode would have an adverse impact on Satyam. Though they called off the deal, it would reflect in valuations of the company,” Mr Ambreesh Baliga, Vice-President of Karvy, told Business Line over phone from Mumbai.

Why diversify

He pointed out that there was absolutely no reason for Satyam to diversify into a totally unrelated activity. They could do so if it is a performing sector, and not in a sector that is expected to be in downturn for some time.

Mr Harit Shah of Angel Broking said that the actual independence of Independent Directors needed to be debated. (The proposed deal was ratified unanimously by the Satyam board, which comprises a few Independent Directors.)

While hailing the decision to rescind the move, Mr Shah pointed out that the issue relating to conflict of interest (family relationships among the buyer and sellers of stake) that needed to be discussed.

Share swap

Mr Baliga felt that Satyam should have gone for a share-swap instead of cash pay out to the promoters of the target companies.

This would have resulted in increase of promoters’ stake in Satyam (which is around 8.63 per cent at present), infusing investor confidence in the company.

But it seemed they didn’t have comfort levels in either company and hence the move.

Related Stories:
Satyam to buy Maytas Infra, Maytas Properties for $1.6 b

(This article was published in the Business Line print edition dated December 18, 2008)
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