Under pressure from furious investors, B Ramalinga Raju, chairman of Satyam Computers, called off his plan to make India’s fourth largest software services firm acquire, in an all-cash deal, a real estate firm and a construction firm, both owned by him and his family. The turnaround came within 24 hours of the announcement.
High-decibel shareholder activism, unprecedented in India, against Satyam's throwing corporate governance to the winds forced Raju to abandon a proposal passed by the company’s board to acquire Maytas Infra and Maytas Properties.
Both the companies are owned by Raju’s family members. The deal involved total cash outgo of Rs 7,840 crore, of which about Rs 7,400 crore would have accrued to Raju, his son Teja Raju and other family members.
Brokerage houses, across the board, downgraded Satyam shares to ‘Sell’, leading to hammering of the company’s share price. Satyam shares fell 30 per cent to Rs 158 per share on Bombay Stock Exchange (BSE) on Wednesday.
After crashing by 55 per cent on the New York Stock Exchange on Monday, the stock subsequently rose by 34 per cent in early trades on Tuesday, following the U-turn.
Citigroup, in a note, asked its clients to sell the stock, saying exposure to Satyam is now a high-risk investment. “The deal cancellation is positive but investors’ confidence is broken.”
Coming down heavily on the acquisition issue, brokerage houses and industry analysts said the buyout raises issues of corporate governance practices and lack of transparency.
“It marks a new low in conduct and integrity of corporate governance in our view notwithstanding that it has called it off later,” brokerage firm Edelweiss said in a research note to its clients. “The deal seems to have been deliberately valued to avoid obtaining share holder approval.”