Making their way through the merger

For the last few weeks, C P Gurnani, the CEO designate of Mahindra Satyam-Tech Mahindra has been on a worldwide tour. From India to the US, then onto Europe, Singapore, Hong Kong and Australia, he is taking the story of the imminent marriage of the two firms around the world through road shows. Gurnani along with other key executives including Vineet Nayyar, Chairman and Hari T, Chief People's Officer designate of the combined entity, are talking to customers, staff and other stakeholders about the ensuing merger, dispelling fears and explaining post-merger opportunities to them. “You know, we will be the biggest start-up in the world. The mood is one of excitement and enthusiasm you generally see in a start-up. Only, we are a very big start-up,” Gurnani told eWorld .

Gaining ground

Post the merger, the ‘biggest start-up' would become the sixth largest Indian IT firm by revenue and number of employees after TCS, Infosys, Cognizant, Wipro and HCL Tech. The deal works well for both Satyam and Tech Mahindra at many levels. But most importantly this marriage would reduce risk of high exposure to the US and Europe markets for both companies. While Satyam's exposure to the Americas stands at 50 per cent, Tech M's exposure to Europe is very high at 45 per cent. This would come down to 43 per cent and 35 per cent respectively after the merger, with contribution from rest of the world remaining stable at around 25 per cent.

The other major gain for the two is that their vertical spread will increase. Currently, Tech Mahindra is skewed towards telecom with 96 per cent of its revenues coming from this vertical. On the other hand, Mahindra Satyam, like any other software services firm, has a relatively distributed basket, with manufacturing contributing 32 per cent and BFSI and tech-media chipping in 19 per cent and 21 per cent respectively. Once the merger goes through, the combined entity's exposure to telecom in overall revenue would come down to 47 per cent. Manufacturing would be at 17 per cent, BFSI 11 per cent and technology-media at 10 per cent.

Allaying fears

But despite these obvious benefits, Gurnani is having to hard sell the idea especially to the 75,000 employees, most of whom may not be sharing his excitement. Concerns around their future role in the new dispensation haunt employees across verticals and layers. To be fair, the scepticism is not without a reason. Satyam's headcount fell to 35,000 from 53,000 in the last three years. While some left on their own unable to work in a state of uncertainty as the company weathered the storm around alleged fraud committed by the previous owners, about 10,000 workers were kept on the bench and then shown the door.

Other concerns

Legacy issues around Satyam are one of the biggest worries for the management. While the crisis ridden Satyam settled issues with Upaid Systems and a set of Class Action suits, it still faces claims from Ramalinga Raju family-run firms to the tune of Rs 1,230 crore, Income Tax claims and two Aberdeen action suites in the USA and UK. Unable to conform to the strict regulatory norms in the US, the company withdrew ADS programme and allowed investors either to liquidate shares in the over-the-counter market or transfer them to underlying shares in India. Handled by Citi, the winding down programme is almost completed.

Mr Amneet, Country Head of Everest Group reckons that the merger is just about completing legal and regulatory formalities. "They have already been working together for the last few years with a joint-go-to-market strategy. It will just be continuation of how they are operating now," he said.

The Rajus argue that they have a strong case. Raju had said in his Jan 7 (2009) confession letter that he had arranged advances to help the ailing Satyam. Though Mahindras make light of these claims, they categorised the amount in the balance sheet under ‘Amounts pending investigation suspense account'. “We assert that we owe them nothing but we cannot predict the outcome of the legal proceedings,” says Chairman Nayyar.

“We were in a near-death situation three years ago. After a convulsing and painstaking journey, we are now in a position to be in the big league,” he adds.

But interestingly, a footnote in the earnings note revealed that the company had provided for Rs 1,139 crore to be prudent. It brackets this sum under ‘unexplained differences suspense account' during 2008-09 due to non-availability of information. This resonates well with the Rajus' claim on behalf of property firms that had ‘bailed out' Satyam when the former was trying to camouflage company's financial health.

The crisis, unprecedented in the corporate history of India, proved to be a great revelation for Satyam. "We used to have a system of finding and nurturing leadership in the old avatar. But after the crisis, we found new leaders sprouting from different verticals and practices. They rose to the occasion very quickly and began to drive teams. This is the biggest takeaway," says Hari, who was in a leadership role in the earlier dispensation and continues to play an important role through the crisis and transition. Nevertheless, the run-up to the merger is not an easy one for Mahindra Satyam. Ever since it had won the mandate to acquire the scam-tainted firm in April 2009, it passed through rough weather with no clear visibility on legal and business fronts. The global economic slowdown that began to cast a shadow on the IT industry around that time just tightened the screws. “Management expects 6-9 months for formal closure (of the merger). However, our view is that legal issues at Satyam are potential risks to timelines,” say Pankaj Kapoor and Apoorva Oza, equity researchers at Standard Chartered. Gurnani, however, is unfazed. "We have been facing issues like these in our three-year journey. We will overcome these as well. We would like to consummate the marriage as early as possible," he says.

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