Troubles boil over at Mahindra Satyam AGM

Teething troubles can't continue for three years. If they do, they are bigger maladies and no simple home remedies will help.

The Mahindra Satyam (MSat) management and shareholders should have realised it by now. Three years into the acquisition, the dust raised by the fraud that shocked the Indian industry and investors are yet to settle.

Reports in Business Line suggest there were heated exchanges between the management and investors at the MSat annual general meeting over three issues: the Rs 1,230 crore suspense account; MSat valuation and swap ratio for its merger with Tech Mahindra (TechM); and dividend payout for Satyam investors.

There were heated exchanges between the management and investors at the MSat annual general meeting over three issues:Reuters

As far as the suspense account issue is considered, IL&FS has been demanding that Rs 1,230 crore be shown as a liability, which the management is not ready to. IL&FS is the company that bought the other Ramalinga Raju firm Maytas Infra.

At the AGM, MSat Chairman Vineet Nayyar lost his cool, BL reports.

"The source of the said amount is the result of a crime," he has been quoted as saying. He added that law enforcing agencies are investigating the amount which is the part of money laundering. If the money was legal, why did the then board not pass a resolution on it, he asked.

"The entire amount came through cheques and through the banking system," a representative of IL&FS was reported to have countered Nayyar.

From the arguments, the management seems to be on the right side as of now. Cash transfers can't be considered legal only because it was through checks. Source of the funds is key, especially when the amount is huge.

The merger is now in the final stages of court approval.

A report in The Economic Times had said firms owned by Raju and IL&FS are challenging the merger on basis that the move is "based on wilful falsification of accounts and misrepresentation of facts".

"Wilful falsification of accounts was what the Rajus confessed to. Now the pot wants to call the kettle black," an earlier Firspost article said.

However, for now, it is for the courts to decide about the so-called loan of Rs 1,230 crore and the merger.

The second issue that was raised at the AGM has been a bone of contention ever since the merger was announced.

The merger swap ratio has been set at 1:8.5 (one TechM share of Rs 10 for every 8.5 shares of Mahindra Satyam of Rs 2). The minority investors want the ratio to be 1:4.

An investor has reportedly pointed out that the "odds were against Tech Mahindra following reduced work from companies such as BT".

At the outset, the investor's complaint seems to be valid. There have been reports that TechM is witnessing a decline in its business from BT. Moreover, BT sold a 14 percent stake in Tech Mahindra for Rs 1,395 crore.

Analysts have been hailing the merger on the grounds that it is good for TechM.

The merged entity will have a diversified practice across service and emerge as a strong contender in the current vendor consolidation environment, said brokerage Edelweiss, which initiated coverage of TechM recently. "The above merger will also open up newer opportunities for the company in bids where minimum past execution records are a must," it said.

As these positives come into the picture for MSat investors only after the merger, their grudge is valid, especially since MSat is doing well.

On why Satyam is not paying dividend, Nayyar said it is because of the Sebi rule that a company that carries forward a loss cannot pay dividend. MSat has a carry forward loss of Rs 1,250 crore from Satyam Computer.

"Bear with us. Stay on, you will be rewarded," Nayyar calmed investors who saw a plot in TechM investors getting dividends even as MSat investors continued their wait.

There is unlikely to be an end to MSat's troubles with investors in the near term. As argued in earlier Firstpost article, Satyam's domestic investors got a raw deal while their overseas counterparts got a hefty sum as settlement.

"Mahindra Satyam has settled its cases in the US, paying $125 million to close class action suits, and $70 million to a company called Upaid for alleged forgery in the transfer of certain software properties by Satyam. Another $ 10 million was incurred in settling with the US SEC. Indian shareholders got zilch," the Firstpost article said.

MSat investors are likely to remain unsettled even if the case settles in the court.