Some of the big names in corporate India are believed to be in talks with some leading private equity funds to team up to acquire a strategic stake in Satyam Computer Services, India's fourth-largest software services firm that has been in the thick of a controversy for a proposal, subsequently scrapped, to invest almost Rs 8,000 crore (Rs 80 billion) in two promoter companies.
The aspirants include Anil Dhirubhai Ambani Group, which runs Reliance Telecom, Mahindra British Telecom, L&T InfoTech, among others. The PE players include Texas Pacific, General Atlantic Partners and Carlyle.
Given that the Satyam stock is trading at an attractive valuation and that the company is sitting on cash reserves of over $1 billion, both private equity firms and information technology majors are keen to pitch for a stake in the firm, said sources among Satyam's institutional investors, which own around 60 per cent of the company's equity.
ADAG is a strong contender as it already holds 5 to 6 per cent in Satyam through its mutual fund and insurance ventures. The group has to acquire another 9 to 10 per cent before making an open offer.
The acquirers will not be short of sellers since some institutional investors said they are interested in exiting the company if the price is right because they have lost confidence in the management.
Satyam has seen the resignation of four independent directors in the past two weeks after they faced questions about their role in approving the investments in Maytas Infra and Maytas Property, companies, controlled by founder and chairman B Ramalinga Raju's sons.
With the promoters' stake now believed to be down to just 4 per cent after some institutional investors sold shares pledged with them to make good margin calls, investment bankers and analysts say a management change is inevitable. They point out that some institutional investors would not mind an exit if they get a good price.
Meanwhile, Raju is also in talks with some PE funds and have also asked for help from some industry heavyweights, said an institutional source. The issue to be considered by aspirants would be the price at which they can make an open offer to lure institutional investors to tender their shares. This is important given that the outlook for software sector is not positive.
Vibhav Kapoor, group chief investment officer, IL&FS, whose custodial subsidiary was among recent sellers of promoters' shares, said "Satyam is trading at a PE of 7-8. Though this is lower than Infosys, we believe the software sector companies may trade at an even lower PE in the coming months."
Data of share-trading activity since the Maytas deals were announced December 16 suggest that several players were buying Satyam stock in large quantities. December 17 onwards, average volumes traded rose over 14 times from 41.6 million to 650 million shares. Share deliveries also rose - from 18 million to 179 million shares. Despite this, the ratio of share deliveries to volumes traded dropped from 43:43 to 27:49.