Satyam’s deal fiasco puts spotlight on governance

What were directors doing in approving Satyam’s $1.6 billion deal? Some $1 bn in market value destroyed

An independent director of Satyam Computer Services Ltd continued to defend the company’s decision to acquire two companies controlled by Satyam’s promoters for $1.6 billion (Rs7,568 crore) even after the computer services firm scrapped the deal in the face of intense and angry investor protest.

“We believed in it (the value-creating opportunity in the buyouts), not otherwise at all, ” said independent director V.S. Raju, in a phone interview with Mint.

The decision to call off the deal didn’t help Satyam’s cause, with the stock closing almost 30% down and brokerages and research firms releasing reports to their clients that termed Satyam’s act a “breach of trust” (ICICI Securities Ltd), and “daylight robbery” (Dolat Capital Market Pvt. Ltd). Deal or no deal, the “damage is done” said CLSA Asia Pacific Markets in its report.

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“Our only regret is the reaction and we didn’t anticipate it (opposition to the deal),” added V.S. Raju.

Facing flak: B.Ramalinga Raju. Madhu Kapparath / Mint

Still, within 10 hours on Tuesday evening and early Wednesday morning, the board of the software firm first decided to spend $1.6 billion on acquisitions that would enrich the family of chairman B. Ramalinga Raju, and then decided to walk away from the deal.

Three independent directors on Satyam’s board—Raju, a former director of Indian Institute of Technology, Delhi; retired bureaucrat T. R. Prasad; and M. Rammohan Rao, dean of Indian School of Business—attended the first meeting. Two others—Vinod Dham, who designed the Pentium computer processor, and Mangalam Srinivasan, an academic with stints in University of California at Berkeley, and Harvard—and Krishna G. Palepu, a professor of business administration at Harvard Business School, who serves the company’s board as a non-executive director, phoned in.

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Satyam’s chief operating officer Ram Mynampati and chairman Raju and his brother Rama Raju, who is managing director of Satyam, also sit on the board and attended the meeting.

All the directors phoned into the second meeting to pull the plug on the transactions.

Prasad declined comment. Rao could not be reached for comment on Wednesday. The directors based in the US also could not be reached by phone. Palepu is travelling and is currently in West Asia on business, his office said.

Still, analysts say the directors have some explaining to do.

“Despite Satyam’s reversal of its decision to buy out common promoter-owned realty and construction businesses, questions will linger on, perhaps for a long time,” wrote CLSA analysts Bhavtosh Vajpayee and Nimish Joshi in their report. “Why did the board not oppose the move? Who voted for and against the resolution? Was the board truly independent?”

source: www.livemint.com