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Yis On 22 January 2009, CID told in court that the actual number of employees
only 40,000 and not 53,000 as reported earlier and that had been allegedly
withdrawing INR 20 crorerupees every month for paying these 13,000 non-
existent employees .
Y The New York Stock Exchange has halted trading in stock as of 7 January
2009. India's National Stock Exchange has announced that it will remove
Satyam from its S&P CNX Nifty 50-share index on 12 January.

YMarch
Shares fell to 11.50 rupees on 10 January 2009, their lowest level since
1998, compared to a high of 544 rupees in 2008. In New YorkStock
ExchangeSatyam shares peaked in 2008 at US$ 29.10; by March 2009 they
were trading around US $1.80.
 INTRODUCTION

 Satyam was established in 1987.

 4th fastest growing IT company in India.
 9 % market share
 40,000 employees
 Revenue $2.1 billion
 It is the first company of India listed in three International Exchanges i.e. NYSE,
DOW and EURONEXT
Introduction
Y IT serviices Founded 1986
YHeadquarters Pune, India _
 
 Š_
 formerly Ö
 


  Š _ is an Information Technology service provider company
headquartered in Pune, India It is a joint venture between Mahindra &
Mahindra Ltd ŠM&M and BT Group plc, UK with M&M ŠMahindra and
Mahindra holding 44% and BT holding 39% of the equity
YKey people Anand Mahindra ŠChairman
ineet NayyarŠ
ice Chairman
Sanjay Kalra ŠCEO
YProducts Telecom Software & Solutions Services Information technology
services, BPO and solutions
Y Revenue A $ 984.9 million Š2009
YTech Mahindra has grown rapidly to become the 5th largest software
exporter in India ŠNasscom, 2009 and 1st largest Telecom Software Provider
in India Š
oice & Data, 2009 .
 Consequences leading to acquisition ²
satyam

 Maytas Acquisition.
 Investors Aborted.
 Board Members Resigned.
 On 7th Jan., 09, Chairman resigned after
announced involvement in fraudRaju confessed
that Satyam's balance sheet of 30 September
2008 contained:
 inflated figures for cash and bank balances
of 5,040 crore ŠUS$ 1.09 billion as
against 5,361 crore ŠUS$ 1.16 billion crore
reflected in the books.
 an accrued interest of 376 crore ŠUS$81.59
million which was non-existent.
 an understated liability of 1,230 crore
ŠUS$ 266.91 million on account of funds was
arranged by himself.
 an overstated debtors' position of 490 crore
ŠUS$ 106.33 million Šas against 2,651 crore
ŠUS$ 575.27 million in the books .
 ACTUAL DEBT
O


 WAS 2161

( O
ERSTATED
490 CR.

ACTUAL CASH
IN BANK WAS
321 INFLATED
_ NO ACCRUED
5040 CR.

 ·
 ·  
INTEREST
376.34 CR.

UNDERSTATED
LIABILITY 1230
 ARTIFICIALLY ADDED 588
OPERATING PROFIT ADDED 588
Cr. Which was
ARRANGED BY
2
 (2 _
( MR.RAJU
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Pre acquisition ²satyam saga

 INDIA·S STEP TO SA
E
SATYAM
 The Indian Government has stated that it may provide temporary direct or
indirect liquidity support to the company
 Govt. has appointed new board of members for Satyam consisting of heavy weights
from India's corporate sector.
 Satyam is seeking bank loans to help cover salaries and other operating expenses
WHO WILL ACQUIRE?

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 Acquisition deal

enturbay Consultants Private Limited, a Tech Mahindra subsidiary,
emerges as the highest bidder to acquire a controlling stake in Satyam

Tech Mahindra will be paying 17.6 billion Indian rupees ŠUS$354

million for a 31 percent stake in Satyam, through a preferential issue of
equity. It will also acquire another 20 percent equity through a public
offer to other Satyam shareholders.The move by Tech Mahindra to
acquire a majority stake in Satyam may put off clients from outside the
telecommunications industry, according to analysts. But some of Tech
Mahindra's key managers have experience in other industries from
their previous jobs, Nayyar said.
Income statement tech mahindra
How deal went
 Tech Mahindra acquired 31% of the equity of Satyam
for a consideration of Rs 1,756 crore in a bidding
process beating other interested companies like the
better-known Larsen & Toubro.
 At that time Tech Mahindra was felt to have bought
Satyam for a consideration that seemed a wee bit too
much. But things began to change the moment the
document that was shared with the bidders was
made public last fortnight through a corporate
announcement filed with the stock market.
 Reflecting a relatively robust performance by Satyam
after Raju, the company scrip jumped to the region of
Rs 78-80 Šfor a Rs 2 share .
Deal
 Although Tech Mahindra was supposed to be an underdog in the
race to acquire fraud-hit Satyam as against the heavy weight L&T,
the company went away with the trophy with highest bid of Rs.58
per share from the three bidders. The list of other two edged out
bidders include L&T and Wilbur Ross with their respective bid at
Rs.45.90 and Rs.20 per share. With this deal Tech Mahindra
catapults into 4th largest IT Company in India after TCS, Infosys and
Wipro.
Inside story

 This on Tuesday was quoting above Rs 73, which

is a decline from the high reached last week but
nevertheless well above Rs 58, the open offer
price of Tech Mahindra to acquire shares of
Satyam. Under the takeover norms, companies
taking over other companies are obliged to buy
20% of the equity of the acquired company by a
public offer. Tech Mahindra·s open offer to buy
Satyam shares will close on June 1, but common
sense suggests that nobody will sell at a price that
is well below the prevailing price in the market.
Modus operandi


+ )*,-  ("!

Tech Mahindra acquired a 42.7% in Mahindra
Satyam after it did not receive a satisfactory
response to its open offer for the Hyderabad-
based firm, which was priced at Rs58 a share.
 Thus, the company·s total investment in Mahindra
Satyam works out to over Rs2,900cr, with it
having acquired a total of over 50cr shares in the
firm, almost all of it being equity dilution owing to
additional issuance of shares.
 After acquisition
Shares in Satyam, which has a market value of $2.5 billion,
ended up 7.3 percent at 179.10 rupees, far outperforming a
0.6 percent gain on the Mumbai market. Tech Mahindra rose
4.2 percent to 295.45 rupees.
Satyam stock slumped to a 5-year low late last month after
its botched attempt to buy two firms in which the
outsourcer's founders held stakes and after news it was
barred from World Bank business.
Consequences

  $ 
$  #& 


 (!  !. In 1QFY2010, Tech Mahindra
recorded a 183bp qoq fall in EBITDA Margins on the
back of pricing pressure and the absence of one-time
costs last quarter of around US $5mn. On a yoy basis,
Margins fell 49bp.

( $ 2 # $'  2
! 
 !( . Tech Mahindra recorded a
significant 39.2% qoq decline in 1QFY2010 Bottom-
line Šexcluding one-time items owi significantly
higher Interest costs due to a Rs2,380cr loan taken
to finance the Satyam acquisition and negative Other
Income owing to Forex losses. Yoy, Bottom-line de-
grew 45.8%. ng
Financial analysis of acquisition
 Our analysis shows that the Satyam acquisition
could prove to be EPS-accretive for Tech
Mahindra given disclosure of the above
information.
 We believe that the acquisition could add a
significant 42.9% to Tech Mahindra·s FY2011E EPS.
However, the law suits remain a major concern
and the likelihood that the actual audited results
could differ materially from those stated remains
a key risk.
 Appreciation of the Rupee against the US Dollar
of late is another risk that needs to be borne in
mind.
contd,«
contd ,«
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
Mahindra Satyam in June released some key financial
data pertaining to 3QFY2009 and January and
February 2009. The company had shared this data
with all the companies that had bid for it.
On a consolidated basis, Net Sales stood at Rs2,414cr in
3QFY2009 with EBITDA Margins of 14.7% and Net Profit of
Rs160cr.The company had a Cash balance of Rs373cr at the end
of March 2009 and Accounts Receivable of Rs1,911cr.The data
released by the company is fairly heartening and comes in above
expectations.
Legal aspect
 Tech Mahindra will go to the Company Law
Board ŠCLB for further directions, but our
sense is that Tech Mahindra will be content
to run Satyam with 31% equity.
 However, as per the agreement with the
government, Tech Mahindra can go in for a
preferential issue in its favour, if the public
offer is not subscribed to.
 Raju had run Satyam with 8.5% equity
shares since 2006 and a little over 18%
shares since 1992.
Future of tech mahindra
Tech Mahindra to record a 1.5% CAGR in Top-line over
FY2009-11E, while Bottom-line is expected to clock a 21.9%
compounded de-growth over the mentioned period ŠTech
Mahindra consolidated excluding Satyam financials . At the CMP,
the stock is trading at 16.3x FY2011E EPS. However, including
Mahindra Satyam, valuations fall to 11.4x FY2011E EPS. Given
the release of key financial data by Satyam and the subsequent
new facts coming to light, we upgrade the stock as a major
overhang with respect to Satyam·s acquisition has been done
away with.
Contd«
Contd «
 For the staffers of Satyam to be retained by Tech
Mahindra too it will be a boon although they would
be sort of under foreign rule what with 5-10% of the
top leadership of the company slated to be inducted
from the ranks of the acquiring company.
 For the 8000-odd staffers of Satyam consigned to the
virtual pool, it is a "lose all" scenario. Though they will
get 40% of their basic salary for six months, they have
for all practical purposes been sacked.
 Satyam had a total staff strength of 38,000. Eight
thousand is a significant percentage of this total. That
Tech Mahindra was able to say bye to them ³ and
thus save on considerable costs ³ is another pointer
to the fact that Tech Mahindra got Satyam cheaply.