Satyam-Maytas Misadventure

Satyam Computers announced the buyout of 2 Infrastructure companies – Maytas Infra & Maytas Properties. Both are owned/operated by the sons of Satyam Computer’s Promoter/founder. The reason put forward was diversification in uncertain times. But the market did not like it and they crashed the script’s ADR’s price by almost 55% and as I write it was down 27% on NSE. Promoters have since called-off the proposed acquisition.

Was the proposal so bad? In my opinion, it was not. Yes, questions can be raised about the companies being acquired being related to promoters (who hold less than 10% in Satyam today), but it makes perfect business sense to diversify, especially into areas where the growth is still there.
Maytas Infra has bagged the Hyderabad Metro Project, which can be a good revenue spinner, but requires massive investments. Satyam has free cash to utilise. Some of Satyam’s peers have on their own made huge investments in real estate and hospitality sector – Infosys has built a hotel in its Bangalore Campus and is looking to build more across all it’s locations in the country. Other IT majors are also investing heavily in building Hotels to serve their customers and travelling employees. Satyam’s investment in Maytas is more than an expense, it is also a revenue spinner, unlike own-use hotels and other properties built by other IT companies.

Only thing that goes against the deal was the relationship between the promoters of the companies (Satyam & Maytas). But in some way it is also beneficial considering Satyam can have control of the two companies without much heartburn or issues.

The deal was more beneficial to Maytas than to Satyam considering the cruch is financing infrastructure projects. It would have got easy finance for it’s projects.