Hyderabad Jan. 17: The December 16 bid by Mr B. Ramalinga Raju to get Satyam Computers to purchase the two family-run firms, Maytas Infra and Maytas Properties, was marked by misinformation and fudging of figures, going by the minutes of the board meeting on that day. The minutes of the meeting, which have not been signed, were made available on Saturday, show how the A-group of Mr Raju pushed the deal through. For the record, the $1.6 billion acquisition bid was scrapped within 14 hours and in many ways unravelled the scam at India’s fourth largest IT firm.
* Mr Raju set the tone for the meeting by telling the directors that they had to swallow the “poison pill” of acquiring his family firms because IBM and another company were looking to take over Satyam for its cash reserves. The new company would sack employees to enhance profits, he said, according to a board member present at the meet. By entering unrelated sectors, Satyam would make itself unpalatable for take-over, Mr Raju said. At that time, Mr Raju was hyping Satyam’s supposed Rs 8,000 crore cash reserves; he confessed on January 7 that no such reserve existed. Later, Mr Raju and his brother, Mr B. Rama Raju, said they would be leaving the meeting since it was their family firms that were being discussed for acquisition.
* The minutes also point to the contradictory statements of Mr Ram Mynampati, then director of the firm. Mr Mynampati told the board about the pricing and margin pressures on Satyam. On January 8, speaking as interim CEO, he claimed he did not have any knowledge about pricing and margins. He told reporters that pricing and margins were the territory of Mr Vadlamani Srinivas, the then chief financial officer. “I don’t have any knowledge about what margins the company has,” he had said.
* The Satyam management overvalued Maytas Properties by Rs 1,691 crore. According to an unsigned copy of minutes of the meeting, top Raju aide, Mr Vadlamani Srinivas, told the board that Maytas Properties had almost one-third of the size of realty major DLF’s properties but its valuation was marked at one-tenth that of DLF.
On December 16, DLF’s market capitalisation — the value of all its shares — was Rs 47,190.66 crore. One-tenth of this would be Rs 4,719 crore. The Satyam management valued Maytas Properties at Rs 6,410 crore, or Rs 1,691 crore in excess.
* According to the minutes, Satyam had valued Maytas Properties at Rs 6,410 crore as against Rs 6,523 crore fixed by Ernst & Young, a Big 4 accounting firm. E&Y on Saturday separately denied any involvement in the deal.
In a statement, E&Y has clarified that it was engaged by a law firm to undertake a valuation of Maytas Properties, as required by RBI guidelines for a proposed share transaction involving existing shareholders of Maytas Properties. This valuation was done only to comply with the regulatory requirement and “our engagement letter and valuation report clearly and unequivocally state the same.” This newspaper had reported on January 5 that Satyam had used an unrelated E&Y valuation commissioned by a third party.
* The Maytas Properties CEO, Mr K. Thiagarajan, informed the board that it had not leveraged private equity — raised money from private equity firms — despite its land bank of 6,800 acres. He did not mention the Rs 600-crore equity investment made by JM Financial’s realty fund Infinite India through 100 per cent convertible debentures.
* Satyam Computers said a Delhi-based law firm, Luthra and Luthra, had conducted title diligence of the 6,800-acre land bank of Maytas Properties. This was not true. The law firm has denied its involvement in the deal. However, Luthra and Luthra was engaged by Maytas Properties in connection with its proposed initial public offering (IPO) and pre-IPO private equity transactions.
“As part of the proposed IPO process and for preparation of the Draft Red Herring Prospectus, we had conducted a legal due diligence exercises on the land holdings of Maytas Properties and no valuation exercise was carried out by us,” Luthra and Luthra said in a statement from New Delhi. At least three independent directors — Dr Krishna G. Palepu, Mr Vinod Dham, and Dr Mangalam Srinivasan — raised questions about the deal, but approved the proposal.
“The proposed acquisitions have two complicated aspects — unrelated diversification, and related party transactions,” said Dr Palepu, Harvard Business School professor of corporate governance who later resigned as Satyam director. Dr Palepu participated in the meeting by phone conference, according to the minutes. “It is very important that management makes the same compelling presentation to the investors as well,” Dr Palepu had advised. Instead, the board went ahead and approved the deal and announced it to shocked investors. “Since the transactions are among related parties, it is important to demonstrate as to how the acquisition would benefit the shareholders of the company and enhance their value,” Mr Dham had said. Again, nothing of the kind was done.
Dr Srinivasan’s comments during the meeting indicates her discontentment over the continued neglect of independent directors by the Raju-led management. She was the first among the independent directors to quit after the row over the December 16 deal. “Dr Mangalam Srinivasan suggested the management to involve the board members right from the beginning of the process to avoid the impression that the board is used as rubber stamp to affirm the consequent or decisions already reached,” the minutes said.
Mr T.R. Prasad, former Cabinet secretary, and Mr V.S. Raju backed the logic of the management that infrastructure would be the next happening sector. “Indian growth is growth-oriented and infra is clearly seen as a definitive growth story,” Mr Prasad had stated according to the unsigned minutes. He even suggested a three-step valuation process if Maytas Properties’ valuation is considered to be high, according to the minutes.
Later, however, Mr Prasad said he had raised objections to the deal. Mr Prasad did not resign and stayed on till the rump board was sacked by the Centre on January 9. Dr M. Rammohan Rao said the valuation for the two companies needed to be updated and advised that this be communicated to all the stakeholders
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