India Insight

Tech Mahindra, part of Indian business group Mahindra & Mahindra, won the race to acquire Satyam Computer Services on Monday, in a deal that’ll help the mid-sized outsourcer gain in size and also lift clarity on Satyam’s fate.

In a race that saw only a handful of bidders, Tech Mahindra beat rivals such as engineering conglomerate Larsen & Toubro and U.S.-listed Cognizant Technologies. Tech Mahindra agreed to buy a 31 percent stake in Satyam at 58 rupees, a 23 percent premium to Satyam’s last closing price.

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Tech Mahindra, established more than 20 years ago as a joint venture between Mahindra & Mahindra and British Telecom, faces the daunting task of reshaping Satyam, a company at the heart of India’s biggest corporate scandal.

Ever since Satyam’s founder Ramalinga Raju shocked markets by disclosing the $1 billion-plus fraud, there have been numerous reports of Satyam’s employees jumping ship and some clients cutting back on orders to Satyam.  The company’s accounts are also still being restated and its U.S. liabilities are unclear.

Will the government continue to keep a close eye on Satyam? What’s going to be the fate of Satyam’s employees and clients? Will the Tech Mahindra-Satyam combination be able to grab market share from leaders Tata Consultancy, Infosys Technologies and Wipro? These are issues for which Tech Mahindra will need some answers pretty soon.

Three months after its founder Ramalinga Raju shocked markets by disclosing India’s biggest corporate scandal, Satyam Computer Services is desperately pinning its survival hopes on its auction set for April 13.

But only a handful of bidders are in the race due to lack of clarity over Satyam’s accounts and potential legal liabilities from U.S. lawsuits. Even if the company manages to find a buyer for a 51 percent stake, it’ll take a long time to instill confidence among employees already jumping shipand nervous clients.

What about the role of the government, whose appointed-board is due to choose the buyer the same week the country heads for national elections? Will the government remove its handpicked board or continue to keep a watchful eye on any new strategy chalked out by the new buyer?

“To define is to limit,” wrote T.S. Eliot.

Indeed sometimes, to limit things, they just may have been defined in a particular manner.

This struck home when I saw a communication by the World Bank on poverty estimates.

The World Bank produced an update of poverty numbers for the developing world based on an international price survey conducted in 2005.

Hold on to cash and don’t jump in to help family-owned firms.

Satyam Computer Services got this stern message this week when it was forced to dump a plan to spend $1.6 billion to buy two builders, part-owned by Satyam’s chairman and other insiders.

Ramalinga Raju, chairman, Satyam Computer Services is seen in his office in Hyderabad in this undated handout photograph. REUTERS/Handout

The move sent shockwaves across a country known for its trailblazing software industry, and triggered a cloud over corporate governance in India.