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Hyderabad, Dec. 18 How independently did the independent directors act on the board of Satyam Computers in the now highly questioned and failed decision by the IT major to acquire two infrastructure companies?

When posed this question, Prof. M. Rammohan Rao, Dean, Indian School of Business, said “We had taken an independent view and raised our concerns over the deal”.

At the board meeting on December 16, questions were raised on the unrelated diversification, valuation and other issues, Prof. Rao, who is an independent director on the Satyam board, and who chaired the meeting, told Business Line over telephone from New Delhi.

When the Satyam management proposed the acquisition, concerns were raised on the unrelated diversification. There was a threadbare discussion. Two views emerged. First was why not stick to core competency and second, why to venture into a risk, since infrastructure was long-term growth and whether Satyam and target companies had synergies.

The other significant issue related to the valuation of the companies. Maytas Properties was valued much higher than $1.3 billion by one of the top four consultants (Prof. Rao said he could not disclose the name on confidentiality grounds).

“The Satyam management came up with the $1.3-billion acquisition price, which was much lower than the consultants’ valuation, which we thought was conservative. Similarly, due diligence was also done in the case of Maytas Infra. Based on these counts, the board said okay.”

Asked whether the target companies — Maytas Properties and Maytas Infra — led by the two sons of Mr Ramalinga Raju were taken into consideration by the board, Prof Rao said “We felt the valuation proposed by the Satyam management was lower and conservative, despite the family ties. We took an independent view on this”.

When asked if the board had taken into consideration the possible impact on shareholders’ interests and the market reaction, the ISB Dean said “There were concerns on these grounds as well, especially the market reaction for such an unrelated diversification”.

“However, there was no way we could gauge the market reaction first. Therefore, we decided to take a risk. But the way the market reacted was a bit unanticipated,” he added.

On the deal falling through at such a rapid pace, Prof. Rao said “It was a right decision by the management, but it is unfortunate that we had to backtrack”.

On his future on the board as independent director, especially in the context of the investors and shareholders opposing the decision and the management reversing the move, he said “I will continue on the board, no other thinking right now”.

Board members

Interestingly, the board, apart from Prof. Rao, consists of a management professor from the Harvard Business School (HBS), Prof. Krishna Palepu; a former Director of two IITs, Prof. V.S. Raju; a former Union Cabinet Secretary, Mr T.R. Prasad, and the father of Pentium chip, Mr Vinod Dham, and others.

Another interesting feature, though paradoxical when viewed in the context of the recent developments, is the fact that Satyam Computers was awarded the Golden Peacock global award for excellence in Corporate Governance very recently by the World Council for Corporate Governance.

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(This article was published in the Business Line print edition dated December 19, 2008)
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