BT-backed Indian outsourcer Tech Mahindra has bought a controlling stake in Satyam Computer Services for Rs17.6 billion (£238 million).
Tech Mahindra’s potentially risky investment in Satyam could come as a surprise to BT investors, analysts noted, after BT posted a £340 writedown after losing money on a number of its largest contracts. Further writedowns, to cover losses on its part of the £12.7 billion NHS National Programme for IT, aer expected next month.
BT has a 31 percent investment in Tech Mahindra, and is the Indian firm’s largest customer.
Satyam, whose former chairman B. Ramalinga Raju in January admitted inflating the company’s profits by over $1 billion, has been valued at £741 million, a 23 percent premium to its last stock market closing price, as a result of the acquisition. Tech Mahindra will first buy a 31 percent stake, then place a public tender for another 20 percent.
Sources close to BT told the Financial Times that following talks with Tech Mahindra, the UK services company was satisfied that the opportunities “outweighed the risks”, the newspaper reported. The deal will add about 48,000 Satyam employees to Tech Mahindra's current workforce of 25,000 people. Many large UK businesses use Satyam for application development, including Birds Eye Iglo. Customers in other countries include Citigroup, Nestle, Qantas and Cisco Systems.
But analysts said questions lingered over the reliability of Satyam’s accounts, and warned of pending litigation by investors. Anthony Miller at TechMarketView questioned how much due diligence Tech Mahindra and BT could have done “in just a couple of weeks or so, especially considering the circumstances”.
Tech Mahindra chief executive Vineet Nayyar had reportedly put Satyam’s revenues around $1.5bn, Miller noted. But the last financial report that Satyam issued, for the quarter to 30 September 2008, showed revenues at almost $2.5bn. “That's rather a large discrepancy, don't you think?” Miller asked.