Wednesday, January 28, 2009

Does L&T have a game plan for Satyam?

Morgan Stanley

 
The Backdrop:

L&T built up a 4% stake in Satyam in early January 2009, before the disclosure by Satyam's promoters that the accounts had been falsified. Post the disclosure, L&T did not purchase any shares until January 23, 2009, on which day, in two block deals, the company upped its stake to 12%. Given that Satyam is currently a black box with little clarity on its assets and liabilities, we (in line with the rest of the market) viewed the development with mounting concern. L&T's CMD, Mr. A.M. Naik, and CFO, Mr. Y.M. Deosthalee, got on a call with investors today to alleviate concerns and discuss the company's game plan on Satyam.
 
L&T's Game Plan for the First Stake Purchase:

The acquisition of the first 4% was done to help L&T Infotech (the IT services arm of the company) to compete with the top-tier companies in the IT services space. With the Satyam franchise (thought good at that time) available relatively cheap, and the promoters holding a low stake (8.6%), L&T management believed that the acquisition of a small stake would be enough to push through a strategic alliance between Satyam and L&T Infotech, allowing the companies to go to market together.
 
L&T's Rationale for the Stake Increase:

L&T's plan for Satyam has not really changed dramatically over the last few weeks. After waiting for around three weeks to get more clarity on Satyam's liabilities, L&T has increased its stake to 12%, based on the information it had available. The end game remains the same, with L&T looking for a strategic alliance between L&T Infotech and Satyam. L&T has also lowered its cost of acquisition from around Rs170 to around Rs80 / share. L&T believes that the increased stake gives it the leverage to influence thinking at the board level.


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