The unholy deal under which the board of Satyam Computer Services was unanimously ready to transfer the cash of the company to an unrelated firm, owned by its promoters that control 8.6 per cent of Satyam, raises issues that affect each and every one of us investors. While the deal has been withdrawn under investor pressure, the issue is no longer about a promoter gone bad or a blue chip, cash-rich company that carries a 2 per cent weight in the Sensex.
As interested parties, promoters can be forgiven and so should the Rs 9,800 crore company’s founder and chairman B Ramalinga Raju, who attempted to divert approximately $1.6 billion of cash surplus of Satyam to his sons’ companies — $300 million to acquire a 51 per cent stake in his son’s listed company Maytas Infra and $1.3 billion for a 100 per cent buyout of the family’s privately owned company Maytas Properties. All told, about Rs 7,700 crore, give or take a hundred crore.
With this crude attempt to divert public money into private coffers, Raju and sons will join the ranks of promoters that markets will associate with high risk. The ‘promoter premium’ that an Infosys or a Wipro can get because of their clean and transparent corporate governance will be missing in case of companies promoted by Raju and sons. (Infosys quotes at 12.3 times earnings, Wipro at 9.7 times and after crashing 31 per cent to Rs 157 today, Satyam is available at 5.1 times earnings.)
What is not so easily forgivable, or will be forgotten soon, is the conduct of the five independent directors of the board in this deal, including luminaries like the father of the Pentium chip, Vinod Dham. As independent directors, it is their job to protect the interests of minority shareholders, particularly the 57 million individual investors who collectively control 8.5 per cent of the company, the same as the promoters. When independent directors hand over their vote to promoters to play with, it’s a breach of trust.
Apart from Sebi, which I’m sure will sink its teeth deep into this controversy, the role of institutions like ICICI Prudential Life Insurance (it owns 2.5 per cent), Life Insurance Corporation (1.5 per cent) and mutual funds (5.7 per cent) will be watched. They owe it to their policyholders and investors to ensure that Satyam reverts to being the company it was, for their actions today will determine investor behaviour tomorrow.
This board needs to be sacked.