Satyam not the first co in India to take a U-turn

MUMBAI: In the midst of a rather uncertain environment, corporates have not had it easy. Satyam is a case in point. The management of Satyam made the announcement of acquisition of Maytas companies on Tuesday evening and by Wednesday morning, it was apparent that the deal was not going to see the light of day.

This is not the first time that a company has backtracked on a huge announcement and there is a reasonably good chance it will not be the last one either. Just a couple of months ago, London-listed Vedanta went public with a large restructuring exercise, which came a cropper eventually, with key investors giving it the thumbs-down. Here, a group of shareholders forced the company to withdraw a proposal where each company within the Vedanta group would focus on a particular business segment such as aluminium, copper, zinc, iron ore and power. In both instances ��� Vedanta and now Satyam ��� the reaction from the investing community was adverse and the management of the two companies decided it only made better sense to call off their respective transactions, instead of getting on to a perilous path.

Importantly, the stock market was not too enthused and stocks suffered on bourses. Satyam, like Vedanta, is listed internationally and its ADRs lost over half its market value within hours of the market opening on Tuesday. On Indian bourses, the damage was lesser, albeit the stock was hammered by 30%.



If Vedanta took a fortnight before dropping its restructuring plan, Satyam���s controversial decision to acquire large stake in two group companies was called off less than a day after it was announced. Market trackers point out that investors are today a more mature lot and companies will have to be doubly careful before making that big-bang investment decision.

Sometime ago, Reliance Mutual Fund, a minority shareholder in Novartis India, had questioned Novartis on its outstanding inter-corporate deposits worth Rs 340 crore. ���If the company does not need the cash, it can return it to shareholders,��� the fund had pointed out.

In Satyam���s case, the Investor Grievances Forum has taken up the matter with the minister of company affairs Prem Chand Gupta. Some of the issues the association has raised are the manner in which the decision was taken, announced and then withdrawn. The role of independent directors and the amount of transparency involved in the valuation of closely-held companies are some issues it has asked for an enquiry into. ���We discussed the matter with the minister and he has assured us that an enquiry will be ordered,��� said Kirit Somaiya, the association���s president.

���What has been going on here in India is a reaction from investors whose general awareness levels have increased substantially,��� says Abhay Aima, head-equities and private banking, HDFC Bank. He adds that it will be difficult for companies to go ahead with deals that are not perceived to be investor-friendly.

The other side to the story is that Indian companies are listed in overseas markets. There is pressure from the international investors as well. A worrying tone comes from Motilal Oswal, chairman, Motilal Oswal Financial Services, who thinks that instances such as those of Satyam and Vedanta raise questions on the role of the independent board of directors.

���There are also investors who have sold the company���s stock just after the plans were announced,��� he says. For now, companies will have to contend with tough shareholders who will question decisions which seem irrational or unjustified. Terming the approach of the Satyam management as opportunistic, Mr Oswal maintains they did not get the right kind of advice.

���Companies have to be more upfront keeping in mind the broader interest of shareholders,��� he adds. Of course, companies like Jet Airways too, were forced to backtrack on letting go off as many as 1,800 employees. While it was believed to be on account of political considerations, the net result was these employees were nevertheless reinstated.