Markets reacted strongly to the Satyam-Maytas deal. ADR down 55% while it closed down 30% on NSE/BSE. Satyam’s reputation built over 21 years has been destroyed overnight. So what will the management do to restore some confidence of the investors back into the company. Satyam holds Rs 5300 crs in Cash and Cash Equivalents. To quote from Ramalinga Raju’s interview to CNBC,
“Now that we are not going ahead with this transaction and it goes without saying that we will evaluate other options closely and take a decision that in our opinion is best for the investors”.
Though increasing dividend is an option, my sense is that the company will go for a buy-back few months down the line which will help promoters increase their stake in the company from the present 8.61%. Satyam market cap is Rs 10,586crs at today’s closing price of 157. Assuming company utilises Rs 3500crs from its cash chest for the buy-back at a price of Rs 225 (closing price before the deal was announced), it can buy-back 15.55 crs from the market. There are 67.34 outstanding shares which means the company can buy-back 23% of its total stock. Promoters stake subsequently will be 11.19%. All this would lead to marginal relief to the investors as only 1 share out of 4 shares held will be accepted by the company. Corporate governance issue will make sure that Satyam joins the league of mid-tier IT companies when it comes to PE.