A Perspective on Government Takeover of Satyam1

A Perspective on Government Takeover of Satyam1 - Transcript

Company Profile
Satyam India s No 4 software services exporter was incorporated as a Private Limited Company in 1987 by its chairman B Ramalinga Raju who was born into a family of farmers Before Satyam Raju ventured into other businesses such as construction and textiles
He started Satyam Computers with 20 employees and bagged multitude of IT projects from US companies A graduate in B Com Raju did MBA from Ohio University
Satyam debuted on the Indian markets in 1991 followed by a listing in New York in 2001
In 2008 it launched a secondary listing on Euronext Amsterdam under NYSE Euronext s new fast path process for cross listings in New York and Europe
In the fiscal year to March 2008 Satyam reported a 46 3 per cent rise in revenue to 2 1 billion under the US accounting standards while net income rose 39 7 per cent to 417 million
In October it said revenue in this fiscal year ending in March 2009 will rise 19 21 percent to 2 55 2 59 billion
Satyam whose clients include General Electric Nestle Qantas Airways and Fujitsu specializes in business software and offers back office outsourcing and consulting services Earlier the company said that it plans to expand its presence in Europe Asia Pacific and the Middle East to cut its dependence on the United States
Satyam based in the southern Indian city of Hyderabad had 52 865 employees at the end of the September 08 quarter
It competes with local players such as Tata Consultancy Services and Infosys Technologies as well as global majors such as IBM and Accenture for outsourcing deals
In 2008 Satyam attempted to acquire Maytas Infrastructure and Maytas Properties founded by family relations of company founder HYPERLINK http en wikipedia org wiki Ramalinga Raju o Ramalinga Raju Ramalinga Raju for 1 6 billion despite concerns raised by independent board directors Both companies are owned by Raju s sons This eventually led to a review of the deal by the government a veiled criticism by the vice president of India and Satyam s clients re evaluating their relationship with the company Satyam s investors lost about HYPERLINK http en wikipedia org wiki Indian rupee o Indian rupee INR 3 400 HYPERLINK http en wikipedia org wiki Crore o Crore crore in the related panic selling The USD 1 6 billion INR 8 000 crore acquisition was met with skepticism as Satyam s shares fell 55 on the HYPERLINK http en wikipedia org wiki New York Stock Exchange o New York Stock Exchange New York Stock Exchange Three members of the board of directors resigned on 29th December 2008
Analysts questioned the motives of Satyam s top executives saying there was a potential conflict of interest because they hold stakes in both companies They also said the acquisitions made little sense at a time when technology outsourcing companies are preserving cash to help weather the global economic slowdown
Ramalinga Raju originally promoted the deal by saying it would de risk Satyam s core business in IT services
What came as a severe blow to the Hyderabad based IT provider facing flak from investors on its decision to acquire Maytas was World Bank banning it for 8 years
The World Bank has banned Satyam from providing it services for eight years for alleged malpractices including bribery The ban will severely impact the business prospects of the Hyderabad based company already battling to retain and attract fresh business in a recession hit global market
The World Bank debarment has been meted out for improper benefits to bank staff and lack of documentation on invoices World Bank information security Chief Robert Van Pulley admitted to the ban during a recent meeting with the officials of Government Accountability Project GAP a whistleblower protection organisation in the US The bank has handed over the case to the US Justice Department and the Treasury Department
Satyam started providing IT services to the World Bank in 2003 Two years later allegations of bribery surfaced In 2007 an internal World Bank investigation found that former VP Mohamed Muhsin had secured contracts and purchase orders worth 100 million for the Indian firm in return for Satyam s stock options ADRs at preferential prices After which Muhsin was banned permanently from the bank However Satyam was allowed to work for the bank till 2008
There have also been allegations against Satyam of causing security breaches at the bank World Bank s records which contain sensitive financial information have reportedly been illegally accessed over the last year
In addition to other controversies involving Satyam on January 7 2009 Chairman HYPERLINK http en wikipedia org wiki Ramalinga Raju o Ramalinga Raju Raju resigned after publicly announcing his involvement in an HYPERLINK http en wikipedia org wiki Accounting fraud o Accounting fraud accounting fraud
Raju confessed that Satyam s balance sheet of 30 September 2008 contained
Inflated figures for cash and bank balances of HYPERLINK http en wikipedia org wiki Indian rupee o Indian rupee Rs 5 040 crore US 1 04 billion as against Rs 5 361 crore US 1 1 billion crore reflected in the books
An accrued interest of Rs 376 crore US 77 46 million which was non existent
An understated liability of Rs 1 230 crore US 253 38 million on account of funds was arranged by himself
An overstated debtors position of Rs 490 crore US 100 94 million as against Rs 2 651 crore US 546 11 million in the books
Raju claimed in the same letter that neither he nor the managing director had benefited financially from the inflated revenues He claimed that none of the board members had any knowledge of the situation in which the company was placed
After the scandal broke the then board members elected Ram Mynampati to be Satyam s interim CEO Mynampati s statement on Satyam s website said
We are obviously shocked by the contents of the letter The senior leaders of Satyam stand united in their commitment to customers associates suppliers and all shareholders We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation
On 10 January 2009 the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors The current board has failed to do what they are supposed to do The credibility of the IT industry should not be allowed to suffer said Corporate Affairs Minister Prem Chand Gupta Chartered accountants regulator ICAI issued show cause notice to Satyam s auditor PricewaterhouseCoopers PwC on the accounts fudging We have asked PwC to reply within 21 days ICAI President Ved Jain said
On the same day the Crime Investigation Department CID team picked up Vadlamani Srinivas Satyam s then CFO for questioning He was arrested later and kept in judicial custody
On 11 January 2009 the government nominated noted banker Deepak Parekh former NASSCOM Chief Kiran Karnik and former SEBI member C Achuthan to Satyam s board
Immediately following the news Merrill Lynch Now with Bank of America terminated its engagement with the company Also Credit Suisse suspended its coverage of Satyam It was also reported that Satyam s auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal SEBI the stock market regulator also said that if found guilty its license to work in India may be revoked Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues which was stripped from them in the aftermath of the scandal The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009 HYPERLINK http en wikipedia org wiki Satyam scandal l cite note 14 15 India s National Stock Exchange has announced that it will remove Satyam from its S P CNX Nifty 50 share index on January 12 The founder of Satyam was arrested two days after he admitted to falsifying the firm s accounts Ramalinga Raju is charged with several offences including criminal conspiracy breach of trust and forgery
Satyam s shares fell to 11 50 rupees on 10 January 2009 their lowest level since March 1998 compared to a high of 544 rupees in 2008 HYPERLINK http en wikipedia org wiki Satyam scandal l cite note 16 17 In New York Stock Exchange Satyam shares peaked in 2008 at US 29 10 by March 2009 they were trading around US 1 80
The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company However whether employment will continue at pre crisis levels particularly for new recruits is questionable
On 14 January 2009 Price Waterhouse the Indian division of PricewaterhouseCoopers announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports inaccurate and unreliable
On 22 January 2009 CID told in court that the actual number of employees is only 40 000 and not 53 000 as reported earlier and that Mr Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13 000 non existent employees
On 5th February 2009 the six member board appointed by the Government of India named A S Murthy as the new CEO of the firm with immediate effect Murthy an electrical engineer has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company The two day long board meeting also appointed Homi Khusrokhan formerly with Tata Chemicals and Partho Datta a Chartered Accountant as special advisors
On 13th April Tech Mahindra acquired majority stake in Satyam at a share price of Rs 58
On 21st June New brand Mahindra Satyam launched
References
www satyam com
www wikipedia com
www yahoofinance com