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L&T has Rs 4,550 cr cash for Satyam buy

Any bid beyond Satyam’s current trading range of Rs 40-50 would be aggressive, analysts say.

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Infrastructure major L&T has about Rs 4,550 crore of cash to aggressively pursue the acquisition of fraud-hit Satyam Computer Services.

Though the company has other options of spending the resources, including repaying its debt, for improving its own Earnings Per Share (EPS), analysts believe L&T has the ability to make an aggressive attempt to take control of Satyam.

Satyam scrip has been trading in the range of Rs 40-50 for the last few days and market analysts feel that any price by the bidders beyond this band would be considered as aggressive.

According to a pricing scenario built by Citi in its March 19 report, L&T might spend anywhere between Rs 1,500 crore and Rs 4,500 crore on Satyam’s preferential offer. While the lowest bid from the infrastructure major could be about Rs 30 per share, the maximum could be Rs 90 per share.

However, the report, authored by Venkatesh Balasubramaniam, Deepal Delivala and Atul Tiwari, said, L&T has de-rated quite a bit due to Satyam concerns. “If L&T loses/does not bid for Satyam and instead repays about Rs 4,000 crore of debt, then L&T parent EPS could increase 7% and consolidated EPS by 6%. Using our current valuation metrics, the fair value would go up to Rs 658. In our view, L&T has de-rated quite a bit due to Satyam concerns,” the report said.

L&T has been pursuing Satyam ever since the IT major announced its plans to acquire Maytas companies promoted by Satyam founder B Ramalinga Raju’s sons. In December 2008, L&T bought 4.04% in Satyam through L&T Capital in the price band of Rs 160-170.
Subsequently, after Raju confessed to fudging of Satyam’s financials, L&T bought another 8% at about Rs 35 per share. The total exposure of L&T in Satyam is estimated to be at Rs 640 crore.
Though there have been different theories about the intention of L&T increasing its stake in Satyam, the Citi report said that “L&T’s motive was to strike a strategic alliance with Satyam and it was never intended as a portfolio investment”.

The additional 8% in Satyam was bought by L&T to protect the interests of its shareholders and influence the thinking of Satyam’s board, the report said.

It is also believed that the infrastructure major was never convinced about Raju’s confession, saying the company’s margins were as low as 3%.

The L&T management was convinced that the margins were definitely much higher in Satyam, sources said.

However, it is still unclear if L&T would get 51% stake in Satyam in addition to its current holding of 12.04%.

But, with new shares issued to the successful bidder, the L&T stake would get reduced to 8.3%. In case it gets an additional 51% in Satyam, L&T’s total holding in that company would be at 59.04%.
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