Satyam Cleared by Regulator to Sell Majority Stake; Shares Rise

Satyam Computer Services Ltd. won approval to sell a majority stake in itself as the company at the center of India’s biggest corporate fraud inquiry seeks to restore confidence with investors and clients. The shares rose.

The Securities and Exchange Board of India approved plans for Satyam to sell 51 percent of the company, the Hyderabad-based software-services provider said today. International Business Machines Corp. may be the front-runner to acquire the Indian company, the Business Standard reported yesterday, citing unidentified people familiar with the situation.

Satyam shares rose 20 percent, valuing the company at 28.4 billion rupees ($550 million). Its state-appointed board is expediting the sale to woo back investors after founder and former chairman Ramalinga Raju said in January he inflated assets by more than $1 billion, pushing down the stock by 76 percent.

“This means that the process can now move forward because the more Satyam delays, the greater the risk that customers will desert it,” Apurva Shah, head of research at Mumbai-based Prabhudas Lilladher Pvt., said by telephone.

IBM, the world’s largest computer-services provider, and Larsen & Toubro Ltd., India’s biggest engineering firm, are the leading contenders to buy Satyam, Global Equities Research LLC said in a report on Feb. 24.

IBM Team

Karen Davis, a Shanghai-based spokeswoman at IBM, declined to comment. Larsen hasn’t yet decided whether it will bid for Satyam, Chief Financial Officer Y.M. Deosthalee said today. The Mumbai-based company, which owns 12 percent of Satyam, needs more details on the bidding process, he said, without elaborating.

Armonk, New York-based IBM has begun talks to buy Satyam and brought in a team of lawyers and investment bankers to assess the deal, according to the Business Standard report. IBM increased its India workforce 15-fold to 73,000 in the five years through 2007 in a bid to keep its largest customers from sending work to rivals such as Tata Consultancy Services Ltd. and Infosys Technologies Ltd.

Larsen appointed Nomura Holdings Inc. and Citigroup Inc. as investment bankers to advise it on a potential bid for Satyam, an executive at the engineering company said on March 2. The construction company, which has a software unit L&T Infotech Ltd., may make a bid to acquire control of Satyam, Chairman A.M. Naik said last week.

Spice Corp., with businesses in entertainment and communication technologies according to its Web site, will bid for a 51 percent stake in Satyam, Chairman B. K. Modi said by telephone from London today. Spice, which in January offered 20 billion rupees to buy control of the Indian software provider, will bid for Satyam on a “as is where is” basis, Modi said.

Financial Information

Satyam gained 7.05 rupees to close at 42.15 rupees in Mumbai trading, the most since Jan. 27, while India’s Sensitive Index rose 1.6 percent. The stock has lost 90 percent of its value in the past year, while the benchmark has declined 50 percent.

Bidders, aiming to gain Satyam’s workforce of about 50,000 employees and customers including Cisco Systems Inc., may face the challenge of making offers before the Indian company restates its financials. The buyer will also have to consider potential liabilities from lawsuits filed against Satyam in the U.S.

Satyam will share as much financial and customer information as is legally permissible with bidders, Chairman Kiran Karnik said on Feb. 24. The company had so far lost three “major” clients including State Farm Mutual Automobile Insurance Co., Karnik said at the time.

“People distribution, the client distribution and revenue distribution, all three are important,” in the absence of the restated financials, Tarun Sisodia, a Mumbai-based analyst at Anand Rathi Financial Services Ltd. said before the announcement.