Maytas Infrastructure Chief Executive Officer P K Madhav has resigned from the company, according to the information available on the Bombay Stock Exchange.
“P K Madhav, the Whole Time Director and Chief Executive Officer of Maytas Infra Ltd, tendered his resignation from directorship as well as CEO of the company owing to personal reasons,” Maytas said in a filing to BSE.
Maytas Infra, promoted the family of disgraced Satyam founder B Ramalinga Raju, has been hitting headlines ever since the IT firm announced a deal to acquire the company which was later called off following investors’ strong opposition.
Earlier this month, Maytas Infra’s Non-executive Director and Chairman R C Sinha had resigned from the company.
Satyam’s decision to acquire Maytas Infra and Maytas Properties has invited strong reactions from the market, but Satyam continues to reason the deal.
Satyam Chairman and Founder B. Ramalinga Raju said that they have valued Maytas using fair methodology. He sees good growth prospect and fairly good case for the acquisition. Maytas Infra and Maytas Properties, he said, are in a position to support its own operations. He added that Satyam has a fair amount of asset base itself.
Ramalinga Raju said that Satyam would be using its liquid assets to build the infra business as he believes it has potential. He observed that some focused investors may not be aligned to the deal. Though he expects opposition from some investors, he is hopeful that most investors would appreciate the deal.
Raju clarified that there is no leverage on Maytas properties and there is almost no debt on its books. They have Rs 100 crore loan and Rs 200 crore cash on Maytas Properties. It is not in the best interest of Satyam to use its equity to buy assets, he added. The company has followed corporate governance policies diligently in the past, he reminded. They would continue to give enormous importance to IT business, Raju said.
Ramalinga Raju expects significant revenues from the infra business in few years. He is confident of creating value for shareholders from the combined entity. The company needs very limited approvals for the Maytas Properties’ acquisition. He expects Maytas Infra’s open offer to be completed in two-thee months. There is no case for reversing the deal, he said. Raju is expecting a knee-jerk reaction from the market.
Raju’s reasons to buy a major stake in Maytas seem very convincing to him, but to the shraeholder it does not bring in any joy. Do you feel that the justification given by the IT Major’s chairman for the buyout is convincing?
Satyam’s acquisition of Maytas has invited strong reactions from the market and its shareholders. But Satyam is decided on its decision and justifies the diversification stratergy employed by Satyam.
Speaking at a concall, Satyam Chairman and Founder B. Ramalinga Raju, said the move is driven by a need to adopt diversification strategy. He said the current business event is challenging; thus, Satyam needs to diversify the business model for drawing success. He feels that in the recent times it is difficult to make a strategic deal with other IT companies.
Key takeaways from Satyam conference concall on acquisition of Maytas Infra & Maytas Properties
Satyam says:
Once acquisiton happens will be able to add value and liberate the Satyam brand
Current business environment is challenging
Driven by a need to adopt diversification strategy
Maytas Infra hit by economic slowdown like other companies
This is definitely a non-conventional move
Valuation Of Maytas Infra is based on SEBI’s guidance
Maytas Properties has land bank of 6,800 acres; land in and around Hyderabad, Chennai, Visag and others
Need to integrate organisation to deal with uncertainties in the market
Value addition of acquisition will be felt in 2-3 years
Mytas proprerties PAT is almost 20-25%
EPS level - dilution only for the first year
2nd year on EPS is expected to improve
Doesn’t require shareholders permission
$1.3 bn will will go to the promoters of the Maytas Prop and not company
Maytas Prop valuation done by big 4 firms, will not disclose the name of firms
In case of Mytas infra - the magins will be dilutive
Any incremental debt will not have impact on the financial
Satyam Computer a leading IT comapny announced that it will acquire 51% stake in Maytas Infra and a 100% stake in Maytas Properties. The company said that the acquisition of Maytas’ two companies will cost it USD 1.6 billion. It added that it will buy 31% stake from Maytas Infra’s promoters at Rs 475 per share.
Satyam Computer added further that it will make an open offer for 20% in Maytas Infra. The company said that Maytas acquisition will de-risk its core business.
Speaking at the company’s concall, Satyam Chairman and Founder B. Ramalinga Raju, said the move is d
riven by a need to adopt diversification strategy. He said the current business event is challenging; thus, Satyam needs to diversify the business model for drawing success. He feels that in the recent times it is difficult to make a strategic deal with other IT companies.
Raju added that the deal will de-risk the core business of the company as a new vertical-mitigated risk in developed markets. The two companies, he said, offer significant upside in the future.
Raju further said that the company doesn’t require shareholders permission for the deal. He pointed that USD 1.3 billion will go to the promoters of the Maytas Properties and not the company. Maytas Properties valuation has been done by big four firms, will not disclose the name of firms, he said.
Raju pointed that Maytas Properties PAT is almost 20–25% and that its EPS level dilution will only be for the first year and second year on the EPS is expected to improve.
With entry into the consturuction maket, it is left to see if such a diversification could prove beneficial for Satyam and its shareholders. Having said so, it have never taken such steps to foray into other markets and more so without taking into account of the shareholder opinions and it seems like the sahreholders would need some time to adjust to the new risk profile the company offers with such an aquisition.
Do you feel that this move could mitigate the risk factors IT businesses are facing? Or would it lead to additional financial pressures on IT businesses facing a monetary crunch in this market slow down period?
Satyam Computer will acquire 51% stake in Maytas Infra and a 100% stake in Maytas Properties. It will cost the company around USD 1.6 billion. It means that the company is using cash from its accounts for this acquisition.
Legal Experts feel that the deal is more of a shareholders’ issue and not a legal one. The key issue to consider is whether any person selling shares also is on the Board of the acquirer company, in which case it would be a transaction covered by Section 297 of the Company’s Act, which will require central government approval for such a transaction. But otherwise it is pretty much a governance issue. There doesn’t seem to be anything legally that is a problem. Its an ethical challenge that Satyam faces.
There is no need for shareholder approval for purchase of shares. In fact there is case law to say that even if you own the entire capital wholly owned subsidiary, selling that subsidiary does not need shareholder approval. Therefore to buy a company – 51% of another company – you need to see the articles of the company, you need to see the governance matrix of the company. If the board is not prohibited by the shareholders with lesser authority this pretty much something a board could do. Whether it is a right decision or not – can be litigated upon on the grounds of whether it is mismanagement or whether it is operation of the other shareholders – that’s a matter of assailing the merits of the action.
Satyam Computer will acquire 51% stake in Maytas Infra and a 100% stake in Maytas Properties.
Satyam Computer ADRs took a huge beating, after its announcement. It will cost the company around USD 1.6 billion. It means that the company is using cash from its accounts for this acquisition. Satyam ADRs plunged 50.92% or USD 6.39 at USD 6.16.
The Minister of Corporate Affairs, Prem Chand Gupta has said that he will study the Satyam-Maytas deal and examine the details.
Investment giant Templeton said that they are totally opposed to this decision. “We do think that returning money to the shareholder was a better option,” said.
SBI MF and Reliance MF have voiced their note of dissent over the Satyam-Maytas deal.
Reacting to Satyam Computer’s move brokerage house CLSA said that the deal will likely go down as one of the worst corporate governance events in India. It added, “We are moving our rating from an Underperform to Sell. We consider this a major corporate governance issue. We see eroding focus, business momentum and market credibility ahead.”
IT major Satyam Computer Services Ltd. announced today in its press release that its Board of Directors has approved the proposals to acquire 100% stake in Maytas Properties and 51% in Maytas Infra.
Maytas Infra, a 23-year old company, is engaged in the business of infrastructure construction and asset development encompassing core areas of India’s economic growth viz., highways, metro/railways, ports, transport management systems, airports, power, oil & gas, irrigation, water treatment, etc. The company’s track record of delivering excellence has created a niche for itself with innovative business models capturing a strategic and significant share of the action in the infrastructure space.
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