Software major Satyam Computer Services has acquired two property development and construction companies —Maytas Infra and Maytas Properties —both promoted by its own promoters.
HYDERABAD: Software major Satyam Computer Services has acquired two property development and construction companies —Maytas Infra and Maytas Properties —both promoted by its own promoters. The company has acquired 100% shareholding in Maytas Properties.
In Maytas Infra, which is a listed entity, Satyam would be buying 31% of the promoters’ equity and another 20% from shareholders through an open offer.
“While the price proposed to be paid to promoters is Rs 475 per share, the price for the open offer has been approved to be Rs 525 per share and is subject to change in line with Sebi regulations,” Satyam said in a statement.
The deals would cost Satyam $1.6 billion — $1.3 billion for Maytas Properties and $0.3 billion for Maytas Infra.
The acquisition process of Maytas Properties would be completed immediately. However, for Maytas Infra, Satyam would have to go through the open offer and get required approvals since the company is listed.
Maytas Infra, set up in 1985 as Satyam Constructions, is engaged in the business of infrastructure construction and asset development including highways, metro/railways, ports, transport management systems, airports, power, oil and gas, irrigation, water treatment, etc.
The company recently bagged the Hyderabad Metro Project with an outlay of Rs 12,000 crore. Closely held Maytas Properties is into urban infrastructure development and has been working on development of townships, special economic zones, hospitality, retail and entertainment spaces. The company is said to be having a landbank of 6,800 acres and a potential to build 245 million sft.
Though both the acquired companies seem to be having their own edge in the market, the analyst community and the minority investors in Satyam have not taken the acquisition decision easily. In fact, investors are not happy at the way the Satyam board has taken a decision on its own without consulting the shareholders.
“Since the Satyam promoters also are the promoters of Maytas, they abstained from the decision making process. Other directors on the Satyam board unanimously approved the decision,” Satyam CFO V Srinivas said while agreeing that the diversification is “non-conventional”. According to him, though the shareholders are not happy with the decision today, they would change their view on the issue as the benefits accrue in near to medium term from the move.
But, what is more interesting is the way the IT major is emptying its reserves to buy shares from its own family members. Satyam currently has a reserve base of Rs 8,235 crore. The deal would result in a net outflow of about Rs 7,500 crore.
Maytas Infra is promoted by B Ramalinga Raju, the chairman of Satyam, and his immediate family members. They together hold about 36.64% of Rs 58.85 crore equity. While B Ramalinga Raju in his personal capacity holds about 8.25% equity, his wife Nandini Raju holds about 4.37%. Other related shareholders include Ramalinga Raju’s son B Teja Raju (2.53%), B Rama Raju (2.52%) and B Ramalinga Raju HUF (1.13%). Two investment firms believed to be associated with the Raju family - SNR Investments and Veeyes Investments - hold 8.92% each.
In addition, even among the public, the prominent shareholders are from the family. B Rama Raju, the managing director of Satyam and brother of the company’s chairman B Ramalinga Raju, holds about 8.74% equity within the public shareholders quota. Other shareholders from the family include B Jhansi Rani (2.35%), B Suryanarayana Raju (4.30%), B Radha Raju (4.38%) and three investment firms - Elem Investments, Fincity Investments and Highgrace Investments hold 8.92% each.
Agreeing that the acquisition decision was without considering any other target of the same nature before zeroing in on Maytas, Satyam chairman B Ramalinga Raju said the company would put professionals in the fore once the integration is over.
Two of Ramalinga Raju’s sons head each of these companies. Maytas Infra, the listed entity, is headed Teja Raju, Ramalinga Raju’s elder son. Similarly, Satyam’s former employees have also been provided a platform in Maytas. For instance, K Thyagarajan, one of the senior executives of Satyam is the CEO of Maytas Properties.
But, Satyam seems to be putting in its best efforts to convince the shareholders saying the IT and ITES industry is unlikely to give big returns in the near future, while the infrastructure sector would continue to grow.
“By FY2010, we hope to get 20% of Satyam’s revenues from the acquisitions. By 2011, this would increase to 33% and in FY2012, it would increase to 50%,” V Srinivas said, justifying the decision to buy construction companies while they are expected to provide no synergy to the IT major in its core sector of activity.
Ramalinga Raju said, “This would de-risk the core business by bootstrapping a new business vertical in infrastructure. This market segment can mitigate the risks attributed to developed markets and traditional verticals that are likely to be impacted by the recessionary economy. The established brand of Satyam can further enhance the penetration into emerging markets and within the infrastructure industry. The two companies being acquired in a challenging market offer potential for upside in future.”
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