I-Sec says Satyam move breach of trust, Investors may seek change of Management
We believe that even calling off the deal approved by Satyam’s Board for acquiring
promoter-owned companies, Maytas Properties (100% stake for US$1.3bn) and
Maytas Infra (51% stake for US$0.3bn) will lead to serious doubts on the future
corporate governance of Satyam. During uncertain demand scenario, investors
will always prefer companies with proven, high-quality corporate governance.
Therefore, we downgrade Satyam to SELL from Hold. We recommend switching to
Infosys given any sharp correction within the sector post this event.
???? Investors may insist on changing the senior management. We believe that with
significant institutional investor holding (at >45%) the investors may urge a change in
the senior management, which may lead to some corporate events such as the
acquisition of Satyam. In such a case, the stock may stabilise in the medium-to-long
term in our view. However, in the interim, we expect investor interest to decline.
???? Investors may urge even a buy-back or special dividend. Owing to significant
doubts on Satyam’s corporate governance, we believe the investors may insist on
the management utilising the excess cash on the books (cash equivalents of
US$1.12bn as on September 30, ’08) by buying back equity shares or
recommending special dividend. However, in the interim, we expect investor interest
to decline.
???? Satyam stands to lose in any case. We believe that even after calling off the deal,
Satyam may find it difficult to retain key employees and this may lead to operational
issues with the clients. Therefore, we do not rule out the possibility of Satyam losing
in the current vendor consolidation wave with worsening global slowdown. Other
large-cap IT offshore services companies (even HCL Technologies) will benefit from
the likely consolidation.
???? Downgrade to SELL. This irrational corporate development would lead to a
significant fall in the stock price (to the extent of 25-30%) and therefore, at present,
arriving at a price target is difficult. We would review our rating post more clarity on
future operations. We recommend switching to Infosys given any sharp correction
within the sector post this announcement.
-Excerpts of the report Contributed by a blogger
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As one reads the fine print it doesnt seem they have voilated any rules of the land, many of the reactions seem to knee jerk as the move was unconvential in nature, the company has been doing well for so many years now and has won so many laurels