Honest crook? Why investor activism may have backfired

You must hand it to Ramalinga Raju. After 10 years of fraud, his conscience finally began to speak.

So the taciturn capo of binary code tried to come clean on December 17, but you, me, the shareholders and the world did not get it. Not at all.

On that day, when Raju stunned investors by announcing that Satyam will acquire two family firms — Maytas Properties for $1.3 billion and Maytas Infrastructure for $300 million — we got it all wrong, we thought he was trying to enrich his own kin. Turns out, he was actually trying to save Satyam.

With no cash left in India’s fourth-largest IT company — a truth that Raju, chief financial officer Srinivas Vadlamani and top management knew all along, unlike us — all Raju was looking for was one book entry for absolution — a grand delusion to end a decade of numerical sins, to correct a reverse fraud, by using real assets to replace fictitious ones.

And how could he have executed such a book entry, where a company would just admit — verbally or in written — to receiving $1.3 billion but in reality get zilch?
It was possible only through a private, closely held company where nobody asked questions. Or Maytas Properties.

As for the open offer for Maytas Infrastructure, well that wouldn’t have cost much in the scheme of things — once Properties was in, the rest seemed eminently manageable considering that the balance-sheet would have bulked up.

Here is the macabre twist: had shareholders allowed the acquisitions to go through, things would not have come to such a pass.

The Satyam share, which was quoting at Rs 226.50 on December 16 just before Raju announced his plan, is now down 82% at Rs 39.95. The Satyam ADR opened down 91% on Wednesday. Shankar Sharma of First Global says the share can go below Rs 10.

Certainly, a case where shareholder activism backfired badly!