Satyam - as many in the software industry have qualified - has 53,000 employees who did nothing wrong. Their founder has done something wrong and affected the financials - and survivability - of the company. As far as I know, no client of Satyam has come up and said: "Hey, this company did a lousy job of my software project. Shut them down!"
From a client's perspective, the clients paid money to Satyam and Satyam delivered the product. The employees of Satyam got their salaries. So where is the danger of Satyam shutting down? Whether they made a 3% operating margin or a 24% operating margin is a problem for the shareholders in Satyam stock - including the employees who own the shares. It has no material impact on the client or his decision to hire Satyam. Have you stopped buying Toyota and Honda cars because they are losing money? Have you stopped shopping at Pantaloon because it may lose money as a store? Have you stopped flying Jet Airways because it is losing money?
But, Satyam is in trouble - the danger exists. Because of the way the government is reacting. The government is confused between trying to save the company - and trying to save the shareholders. There are 2 distinct issues here: shareholders who have been cheated because of a dramatic oversight from the still silent audit firm of PricewaterhouseCoopers, PwC - and the fact that Satyam has done satisfactory work for its clients.
Panellists on TV channels, commentators, and industry experts are all howling about the "Satyam problem". The international press is barking about the terrible business practices in India - but they forget to focus on the fact that the auditor, PwC, is part of a global company.
The solution, in my opinion, is pretty simple:
The government should take over Satyam at the market price of Rs 30 or so - the level it is bouncing around at. Some mutual funds may howl but we are investment professionals and must take the price of a bad call. And we have the freedom as investors to file our lawsuits against PwC, the audit firm.
The government should send a one-page letter to all clients that Satyam is under government ownership for the next 3 years and it is business as usual from a client-project perspective - Satyam will be IPO-ed in the stock market after 5 years and it will be run by a professional team with a completely independent board of directors. The government will have no say in the business decisions. And if some foreign government or press reporter asks whether government ownership disqualifies Satyam from any business - please ask them to look around the mess in their own country and list out businesses and banks which are now owned by their governments. And please inform them that these government-owned banks and businesses are still winning business contracts in India.
The government should extend a line of credit to Satyam which is equivalent to 2 years of working capital needs (staff salaries, travel expenses, rents) and charge Satyam the cost of interest for this line of credit.
They should hire a CEO from within Satyam who, along with a new set of auditors, should review all supply and marketing contracts that Satyam has to ensure that there is no "leak" in the system.
The equity owners of Satyam - fund managers or employees - take the hit that they anyway have taken. There is no escaping that. The employees, though, will still have their ESOPs in place. If Satyam succeeds as a company over the next 5 years, they will again be rich - this time with a "real" share price.
It is important for the government to understand the problem at Satyam: a real company with real people and real clients - but an unreal founder. And investors who put real money behind fake numbers verified by PwC.
This will allow the government to "fix" Satyam.
We know there will be more terrorist attacks and Satyams down the road - we need to know how to deal with them efficiently and quickly.
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Thanks & Regards
Aditya Kachru | ARN-40736
Delhi-NCR
Hand Fone 0-9818269396
Land Fone 0120-4105997
http://investorspleaselisten.blogspot.com/
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