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Satyam is seen as possible deal target

Joe Leahy in Mumbai | December 31, 2008

India's embattled Satyam Computer Services [Get Quote] could become the country's first large outsourcing company to merge or be taken over amid increasing doubts over whether its founding family still controls the company.

India's fourth-largest software outsourcer by revenue on Sunday said it would hold a board meeting in two weeks to consider matters including "addressing issues arising from a possible dilution of the promoter's stake in the company".

Any move by lenders to liquidate the collateral could have reduced or even wiped out the controlling shareholders' 8 per cent stake in Satyam. With the rest of the stock widely dispersed among institutions, Satyam could be open to potential sale or takeover.

The news underlines the growing uncertainty over the future of the company after Mr Raju sparked a shareholder revolt with an aborted attempt two weeks ago to buy two companies controlled by his family.

Investors argued the proposed $1.6bn takeover of Maytas Properties and Maytas Infra overvalued the two companies and would have amounted to a raid on Satyam's cashpile of more than $1bn, leaving it with net debt.

Satyam had countered the deal was aimed at diversifying away from the slowing outsourcing sector.

It abandoned the deal within hours, but its shares have plunged 40 per cent since the announcement amid a crisis of confidence in Mr Raju and his management.

This worsened last week after the World Bank banned Satyam from doing business with it for eight years, accusing it of providing "improper benefits" to World Bank staff, and other irregularities. Satyam has rejected the allegations.

The group was planning to hold a shareholder meeting this week to approve a share buy-back aimed at restoring confidence, but at the weekend it postponed the meeting to give it time to prepare a wider agenda.

Aside from considering what to do about the possible dilution of Mr Raju's stake, the company said it had appointed Merrill Lynch to review "strategic options to enhance shareholder value", in what analysts believed could include a stake sale.

A sale would be a first for a top Indian outsourcing company.

Most have been considered more likely to be buyers because of their rich cashpiles and rapid growth.

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