Satyam's Real Estate Foray Sparks Investor Backlash
Shares Plummet 30% Amidst Acquisition Plans
Satyam Computer's shares bore the brunt of investor discontent, plummeting 30% in response to the company's announced plan to enter the real estate sector. The proposed deal, worth $1.6 billion, aimed to acquire control of related construction and real estate firm, Maytas.
The Deal That Never Was
- Initial Reaction: Satyam's shares opened down 16.1% and further sank 30% as investors responded negatively to the planned acquisition.
- About-Face: The company subsequently abandoned the deal after its shares fell 55% in New York.
Expert Insights
“Satyam's decision to call off the Maytas deal is welcome. However, the stock may still face challenges as the company had painted a gloomy picture of its IT prospects during the conference call justifying the acquisition. It's crucial for FIIs and non-management shareholders to come together, purchase the 8.5% shareholding of the management, and sell it to an established player, either Indian or foreign.” - VK Sharma, Anagram Stock Broking.
The Controversy Unfolds
- Late Night Announcement: The saga began after India's stock markets closed, with Satyam announcing plans to enter the construction industry by acquiring:
- 100% of Maytas Properties for $1.3 billion.
- 51% of Maytas Infra for $300 million.
- Conflict of Interest Concerns: Analysts questioned the motives of Satyam's top executives, highlighting potential conflicts of interest, given their stakes in both Maytas Infra (36%) and Maytas Properties (35%).
- Strategic Doubts: The acquisitions were deemed ill-timed, considering the global economic slowdown and the need for tech outsourcing companies to conserve cash.
Aftermath
- Partial Recovery: Satyam's stock recovered some losses after the deal was withdrawn, climbing 50% in after-hours US trading.
- Regaining Investor Confidence: Analysts express doubts about Satyam's ability to fully restore investor trust.