The Satyam Marriage

Per today's Economic Times, one of India's highly unreliable business gossip dailies, the current list of Satyam suitors include IBM, KKR, iGate and Fidelity in addition to Tech Mahindra, Spice and L&T. Let us forget that ET news is as unreliable as it can get and do a quick and dirty analysis of who will win over Satyam finally. Of course, all the MBAs from various financial markets will publish voluminous analysis - especially that they have nothing else better to do anyway.

The analysis will have to be done typically 5 angles - investors of original Satyam, buyers/current investors, the employees of Satyam, clients of Satyam and the Govt. (appointed board)...

Investors of 'original' Satyam - this is a easy set of people to be ignored. In the current scenario, any type of purchase is not going to recover the lost money, especially all the goodwill asset value. However the undoubted optimist will still hope that it will be a large public company (read IBM) that will buyout Satyam with a share-exchange plan in place. Institutional investors will oppose any PE buyout because they know all they will get is few peanuts if that was the case.

Buyers/Current investors - Given Satyam clientele, the large workforce, processes of Satyam, IBM might see lot of value in the acquisition. Particularly after HP has lapped up EDS/MPhasis and Obama creating issues for offshoring jobs, IBM might want to solidify its commanding presence in low cost labor. For Tech Mahindra, it is a great time to scale huge right away. iGate's story is still vague - am not sure they have done a due diligence of what they will do if they acquire Satyam - more or less they would get eaten away by the magnitude of Satyam's operations. L&T, Spice are not right suitors according to me. They neither have a good vision nor the capacity to manage a large ITeS organization for now. However, the most important suitor is KKR. No matter what KKR says, the end result is that it will break Satyam into smaller pieces and sell them off one at a time within 5 years or less.

Employees of Satyam - Currently the employees are the strength of the company. However, it is also to be noted that the employees dont have much bargaining power, given the economy. In this kind of situation, the employees would prefer taken over only by an IT Services organization - IBM, Tech Mahindra, iGate - in that order. For them moving to IBM is the safest option - they get a better branded tag and also move into a safe, comfortable and familiar territory. The employees' big fear would be to be taken over by KKR. For a KKR buyout will clearly result in quick layoffs of the excess fat right away and KKR would never hesitate to take tough decisions in tough times.

Clients of Satyam - This is a tough set to deal with. I am sure that the clients would not prefer a L&T/Spice takeover. The clients might be ok with an IBM takeover, with IBM's established reputation. From their point of view KKR may not be a bad choice either - however, the clients know that if KKR steps in, their bargaining power will go down for sure.

Govt/Board - Now what would the board declare as a victory? Am sure that the board would definitely not accept a PE takeover as a victory. For one, the PE pricing will be the most conservative and PE buyout will create lot of uneasiness for various stakeholders. For the board, a sale to Spice might be a full victory -an Indian company transitioned to a Indian company. IBM may be a close choice as well - safe zone.. and IBM has a history of mess-up in a lot of things and will live up to that reputation - a mess in Satyam acquisition will be soon forgotten.

Considering all above, as one can sense, IBM comes to close enough to satisfying lot of factors and a suited suitor for Satyam, though in my opinion, KKR would possibly be the right buyer at the moment. Satyam, in spite of having a strong workforce, is definitely struggling with a immature senior management and a bloated labor force to some extent. KKR would be the right choice to put the company back in shape.

IBM is popular. KKR is a fit. But we should not forget a lot of other players in this game - institutional shareholders, LIC, NASSCOM, other Indian IT Services majors, media and finally Raju (!). 

Lets see who wins the Swayamwaram.