January 7th, 2009
The Satyam saga worsens – terribly so
The Enron of India (Probably!)
The news today re: Satyam is really bad. It makes the events of last month pale in comparison. To begin, you should read Satyam Chairman Raju’s letter of resignation where he accounts for the accounting sleight of hand he says that he alone masterminded. This is an epic resignation letter for any CEO to have written.
Next, check out MarketWatch. They reported that:
Chairman B. Ramalinga Raju said the balance sheet as of Sept. 30 had inflated non-existing cash and bank balances of 50.40 billion rupees ($1.04 billion), understated a liability of 12.3 billion rupees, and overstated debtors’ position of 4.9 billion rupees.
“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years … what started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years,” he said.
“I am now prepared to subject myself to the laws of the land and face consequences thereof,” Raju added.
In another article, MarketWatch reported:
Angel Broking analyst Harit Shah dubbed Satyam “India’s ‘Enron’”, adding Satyam’s misrepresentation constituted “one of the biggest-ever frauds in Indian corporate history.”
Reuters did a great piece that indicated, among other things, that Merrill Lynch has cancelled their engagement with Satyam as a result of this episode. Interestingly, Raju indicated in his resignation letter that Merrill should continue to seek strategic alternatives for the company.
A check of Satyam’s stock on the NYSE shows it to have fallen from over $8.50 yesterday to around 82 cents at the time of this report’s preparation. Lawyers aren’t waiting for the dust to settle either. A class action lawsuit has already been filed for investors of Satyam.
I spoke with fellow industry watcher Vinnie Mirchandani about this latest chapter in the Satyam history. We discussed this situation in particular and the parallels to the Arthur Andersen collapse after Enron. We discussed that:
- No one will launch a takeover of Satyam now. The company’s profitability (and hence its book value) are big unknowns for now and will be until a corrected set of books is produced. That will likely take a while to complete though.
- Satyam is probably finished as an on-going entity. Parts of the firm may be sold off as asset sales but creditors, litigants, shareholders, etc. will all want their piece of the firm. The real estate the firm has (e.g., training center) may be an asset that isn’t sold anytime soon. Andersen’s Q Center, its big training center in St. Charles, Illinois, has been one of that firm’s most coveted assets by many claimants and is still operating under the aegis of Andersen today. What could get sold off are specific practice groups a la the Andersen practice sales.
- If someone doesn’t swoop in soon to take over Satyam’s assets/operations, then they will suffer lots of voluntary attrition and create a deadly downward economic spiral. Since the #1 asset of a services firm is its people, morale is a key issue for any service firm. There has been so much negative press about Satyam the last month that employees would naturally look for a better place to work. Today’s events are toxic to a service firm and people will likely start leaving asap.
- If Satyam’s CEO isn’t prosecuted in India, we both believe the SEC would love to get a crack at him here. If former CA CEO Sanjay Kumar can get U.S. Federal prison time for a revenue recognition issue, then Raju would get considerably more time.
Vinnie and I didn’t get a chance to discuss his old employer PriceWaterhouseCoopers. They audited Satyam’s books and they’ll likely have a lot of explaining to do regarding this accounting deception. This will certainly draw out additional litigators looking for deep pockets to sue. Many writers are, correctly, asking how could they have missed this multi-year deception? A good question indeed.
January 6th, 2009
A New Year and layoff rumors start flying for IBM and Microsoft
Overheard at the electronic water cooler….
Check out the Alliance@IBM website for some interesting reading. IBM employees smell upcoming layoffs around the third week of January and they’re nervous. There’s a lot of detail (e.g., specific office locations, headcount changes, etc.) in their postings, too much if you ask me. Either these employees are really paranoid or there are few secrets in that company.
If there’s any truth to the rumors around Microsoft, then Microsoft will try to beat IBM to the layoffs a week earlier. Check out this story in the Seattle Post-Intelligencer . It does a good job of playing back the headcount concerns some on Wall Street have about Microsoft.
Network World also weighed in on the matter and its sources indicated that contractors to Microsoft would feel the heat more than employees.
But, let’s remember one critical thing: These are rumors not facts. Only the management of these firms knows the real story and they don’t seem to be confirming anything these days.
Rumors about layoffs always peak during a weak economy. Employees are understandably nervous and contractors are usually more vulnerable than employees. Before long, we should see the rumors swirling about every major systems integrator, outsourcer, software vendor and hardware firm.
Got any rumors you’d like to share?
January 5th, 2009
HP’s SaaS PPM solution
A Relevant and Robust Offering for today’s IT organizations
I had a chance to speak with Marc Olesen – VP SaaS for HP Software and Solutions recently. We discussed HP’s offerings in the Project Portfolio Management (PPM) and IT Management spaces.
Background: HP’s software organization is a large entity although that may get overshadowed by HP’s hardware or services product/service lines. The firm has expanded its PPM software offerings in recent years via acquisitions and the most relevant to this discussion include: Peregrine (2005), Mercury Interactive (2006) and Kintana (2003). The company now possesses a relatively complete and formidable line-up of solutions to help internal IT groups manage complex projects and project portfolios.
So who is HP’s target customer for this solution set? The typical PPM buyer is an IT executive in a large firm (i.e., mid-market to Global 2000) whose firm is undergoing change and wants faster turnaround of IT initiatives. Often this executive is rethinking how his/her IT group will deliver optimal value to the company and the constituents it serves. Given today’s economy, most IT executives in the mid-to-large firm space are being challenged to:
- do more with less
- make few mistakes
- spend every penny wisely
- prioritize (and frequently re-prioritize) initiatives
According to Marc, much of HP’s PPM solution set has been around for about eight years now. While SaaS-based PPM solutions for SMB service organizations have been around a bit longer, solutions for large IT enterprises have mostly been licensed, on-premise products.
Some of HP’s rivals for this market are just recently entering the SaaS space. But, in fairness to all PPM providers for the large end of the market (e.g., CA and IBM), the space is seeing innovation from all sides. Providers of IT Management tools are building out product lines to provide more PPM functionality. Likewise, providers of on-premise products are offering SaaS solutions. And even outsourcers are bringing their competencies to bear in a marketplace that is maturing and evolving simultaneously. All of this activity and investment is a rising tide for the PSA (professional services automation), project management and PPM sectors that will help drive new client interest into these tools. It will also bring more sophisticated solutions and more delivery options to more firms. All in all, these are all changes that benefit IT groups.
HP’s solution also speaks well to the current economy. A SaaS-based tool works in this tougher economy when an on-premise toolset might face a more difficult sales process. Moreover, as Marc pointed out to me, the SaaS products do a great job of eliminating the presence of shelfware (or as I call it: SPOTS (software packages on the shelf)). How? When a customer licenses on-premise software, the implementation may have to wait months or years until capital, hardware and people are available to implement it. With SaaS, you pay for what you use and you get to use it all immediately. A big part of the installation and configuration is already completed. No additional hardware must be procured or configured. Users can get productive very quickly. While this observation is true with almost all SaaS solutions, in the PPM space, the speed of getting a solution operational can be very quick because the system can be brought online one project at a time, if so desired.
Where does this PPM solution fit into HP’s overall IT toolset? HP is offering solutions for:
-
PPM (this also includes Earned Value Management and Resource Management capabilities)
- Design/Build/Test (this includes Stress Testing, Security, Vulnerability and Assessment technologies)
- Service Desk
- Change Management
- Release Control
HP sees cloud solutions containing these components:
- Infrastructure as a Service (the computing and storage power)
- Platform as a Service (the development capabilities)
- Software as a Service (the applications level that HP sees as 85% of the action in the cloud)
HP’s SaaS solutions include HP Business Availability Center, HP Performance Center, HP Project and Portfolio Management, HP Quality Center, and HP Service Manager.
HP’s newest acquisition, EDS, will be a sales/distribution channel for this PPM SaaS solution line.
January 5th, 2009
Service firms to struggle in 2009
Big and Small, Local or International - Operational Excellence a Global Mandate
The big news this weekend was that U.S. manufacturing had plunged in December to the lowest level since 1980 and that new factory orders fell to a 60 year low. The outlook outside the U.S. may even be more dire.
For service firms, 2009 looks challenging, too. Here are some of the issues and companies to watch:
- Sabre-rattling in India/Pakistan – According to the CIA Fact Book, 52.8% of India’s GDP (gross domestic product) is services based. A significant amount of this is targeted to the provisioning of IT, call center and other services for non-Indian firms. This revenue is at risk because of the global downturn in business and more is at risk if these two nations cannot mend fences. The problems here though transcend more than religion and current events. India has grown significantly in recent years and it will need to show great maturity and leadership to maintain forward momentum.
- Unraveling of gains in India and elsewhere – The recent announcements regarding MphasiS’ decision to cut salaries of personnel by 20% to as much as 45% for some managers has got to be unsettling for those impacted by these cuts. But MphasiS won’t be alone here. We can expect other offshore service providers to make salary cuts. We can also expect U.S. service firms to freeze pay levels, reduce salaries, insist on unpaid time off and make layoffs, too.
- Several service firms will restructure, disappear or be acquired in 2009 – If your service firm isn’t operationally excellent, run by forward looking and excellent managers, then it’s already in trouble. Satyam, which has been covered significantly in recent postings, (Click here and here) will likely be acquired, get new management and/or face a restructuring. Bearingpoint has to meet some pretty aggressive payment obligations this spring (see these three stories: here, here and here). Booz & Co. will be flying solo without its government practice. It could be interesting to see how well they do without this piece of the firm. Unisys is still trying to turn itself around. Wachovia Capital Markets, LLC opined with this comment on Unisys this weekend:
Bottom-line: Reiterate Market Perform. A new CEO is now taking his turn at trying to turn the troubled company around by announcing his own cost reduction actions. The company has been in a restructuring mode for a number of years and has shown no evidence of being able to grow the top-line due to little competitive advantage in its end-markets, in our view.
The cracks are appearing everywhere. Service firms are being de-listed from stock exchanges, some have seen their share prices collapse, some are hiring advisors to help them be acquired, etc. If you track service firms, 2009 will no doubt be a very fluid year.
January 4th, 2009
Siemens, bribery & SarbOx
How much money can you fit in a briefcase?
The Economist, 12/20/2008, reported that Siemens pleaded guilty to bribery and corruption charges. They also agreed to pay fines of $800 million USD in the US and an additional 395 million Euros in Germany.
This tidbit was particularly interesting:
Surprisingly, considering their crooked purpose, the cash desks seem to have operated on an honour system. Few questions were asked, no documents were required and managers who asked for money were allowed to approve their own requests. Until 1999 Siemens openly claimed tax deductions for bribes, many of which were listed in its accounts as “useful expenditure”. Between 2001 and 2004 some $67m was merrily carted off in suitcases. “There was no complex financial structuring such as you would find among drug smugglers or money launderers,” says Mark Pieth, chairman of the working group on bribery at the OECD. “People felt confident that they were doing nothing wrong.”
Well, I really wonder if Sarbanes-Oxley would have caught this. Someone could have documented this procedure, ensured that the amounts paid to third parties were properly accounted for and then say they met the requirements of the this law. Did it meet the requirements of other laws concerning the bribery of foreign officials? No. But you could probably get this by SarbOx though.
Reading this article makes me wonder if there are other tech firms with an open cash drawer. I haven’t seen one but I’d love to know if they are out there.
The key point here is that laws, regulations, compliance activities and audits won’t prevent law-breaking, bankruptcies and other unwanted business outcomes. You can’t legislate good business decisions – good boards can prevent some of the bad decisions. There is no way to make people make good, legal business decisions. I know. I’ve seen some pretty snarky behavior in my day.
The Siemens business practices should make a great Harvard Business case study someday. I just wonder what conclusions MBA students would draw from this…..
January 4th, 2009
Software & Services - 2009 dictates value delivery a must
Sunday morning - 7 am – suburban Chicago
Driving down a major retail stretch of road
Whizzing past one closed retailer after another – many of these now closed for good
Pass a worker removing signage from a failed retailer
Goodbye 2008
Goodbye to an economy based not on what we needed or what we could afford
Goodbye to a business economy that wasn’t connected to the basics of a solid business model for a number of years. This was a business economy where cheap credit permitted firms to expand beyond the actual, sensible demand for their products and services. This was a business economy where IT and service firms didn’t exactly do the right things either.
Logic will rule the new economy now. It has to as businesses will fail if they can’t get access to capital and credit. It has to as lenders will (and already are) insisting on stellar credit history, due diligence for loans, etc. 2009 will mark a return to risk-adjusted business decisions. For some IT providers, 2009 will be tough. Tough because they will not or cannot change the essence of what they offer to the market.
Application software vendors mystified me much of this decade. Take accounting software vendors. They are selling a solution that will, in almost all cases, re-automate functions that a user has already automated several times before. Do you really think there are any real benefits left for your 6th general ledger to find? No. If you sell re-automation solutions, you can bet prospects will defer on your sales pitches. If all your solution offers is a newer user interface for the same old functionality, your firm is in for some hurt.
If you want to win in 2009, your software has to provide: real incremental value, truly unique capabilities, and, a means to change the competitive landscape for the customers who license it. This isn’t a new idea – it’s an old-fashioned business maxim that is coming back home to roost. If all your offering contains is a slightly cheaper, competitively similar product that operates in a manner quite like the way the prospect already operates, then it is road kill.
Service providers are in for a rough slog, too. If you’ve built a business on implementing the above, tiresome products, few firms will be buying. Sure, you’ll get the occasional firm that outgrew its old software or the prospect whose parent company wants to spin them off. But, customers who are willing to spend a $1 billion on an ERP implementation will be few and very, very, very far between.
Service providers who focus on doing things to clients (instead of for them) are in trouble. If you can’t foresee how your client’s share price is improved based on your efforts, the new economy will kill you.
In the new economy, clients/customers want value. That’s an overused word that too many say without really thinking about it well. A friend of mine used to use the phrase “I love you” to a half a dozen women daily. He didn’t care what that phrase really meant, he was only interested in the swoons it caused. Consultants overuse ‘value’ so much that they can’t really remember what it means either. Neither do many tech firms.
At the end of the day, value for business customers must manifest itself on the customer’s financial statements. Hopefully, it triggers an increase in sales, a reduction in costs, an increase in shareholder equity, etc.
As you return to work this week, remember you’re starting a new year. You owe it to yourself to look inwardly and ask:
- “What will I do today that makes my client and their shareholders wealthier?”
- “Who am I really serving – myself, my employer and/or the client?”
- “How are my activities improving GDP and the economic productivity of our nation?”
If you build software, ask yourself:
- “Are we solving any new problems or just re-paving the same old cow path that we’ve paved a half-dozen times already?”
- “Have we really gone back to the drawing board to re-think what businesses really need in this global, networked, internet-enabled, etc. world we operate in today?”
- “Are we lowering the cost of our solutions or are we expecting customers to pay even more for a non-value adding commodity product?”
Will 2009 be the year companies compare your tech-related firm to General Motors, Circuit City, etc.? Will your tech firm be looking for a bail out, too?
Start the year right – start it with some fresh, healthy introspection.
December 30th, 2008
Satyam - The sharks are circling
New Year’s Resolution – Help Satyam get a new owner and management
On the 19th, I did a lengthy piece discussing the proposed and then rejected acquisitions Satyam’s management recently endorsed. Satyam is a major provider of outsourced services. At that time, I wrote that:
Satyam needs to do the following to regain credibility with its clients and the stock market:
1) dump the CEO
2) dump the board and bring in truly independent board members
3) forget the stock re-purchase – it won’t restore confidence until the governance matters are fixed
Events are moving quickly at Satyam. Barrons today reported that large global integrators, IBM and Accenture were explicitly mentioned, may be in the market to swoop in and buy Satyam. While anyone purchasing Satyam would get access to a significant work force, the acquirer would likely need to drop the Satyam name and re-brand the operation immediately. In my opinion, I would not see Accenture (Symbol: ACN – Note: I am a former partner of and own a few shares in this firm) making this deal unless they could secure a number of long-term client engagements or outsourcing relationships from this transaction. ACN and IBM both would have material (business) cultural assimilation issues to bridge although both firms are quite capable of tackling this. An acquisition would appear to be more of a play for Cognizant, Cap Gemini, HP or a local Satyam competitor (e.g., Wipro).
Satyam has apparently lost four of its board directors. A fifth director has indicated his willingness to stay.
Given the deep price drop and continuing price swings in Satyam’s stock, the management of Satyam may have had their stake in the company diluted due to margin calls. This was reported by Reuters today.
Vinnie, at Deal Architect, reported that Satyam is having issues with its work at World Bank.
The folks at the World Bank had this to say:
BusinessWeek weighed in last week with their thoughts.
Outlook:
The best thing Satyam can do now is be sold to another firm. Investor confidence in the management team appears very low. Replacing this team could be difficult but incorporating the best executives of an acquirer would be quick and effective. The board also needs restructuring/re-staffing.
Satyam will likely not last long as an independent firm. Pressure is probably being mounted now to shop the firm and get a quick deal. Institutional investors will be looking for some sort of deal that improves on the current, low stock price.
Is Satyam’s stock a bargain now? Probably but no one will buy the firm unless the board and much of the current management is gone. The brand is probably a bit challenged and the World Bank matter could further cast a cloud on the brand. A buyer will look at two items: the quality of the firm’s business backlog and the quality (and retention) of the staff within Satyam.
If a deal can happen fast (i.e., in the next 6-8 weeks), the company may not experience material losses of personnel. But, the longer this drama plays out, the worse this will get and the lower a premium a potential suitor will pay.
Doing a deal quickly could be interesting given the current investment climate. Raising the capital needed for a fast, cash acquisition might be tough for all but the largest acquirers.
December 30th, 2008
Jobvite’s smart approach to SMBs and Social Networks
In my day, I’ve hired hundreds and hundreds of service professionals. And, like Southwest Airlines, I was always willing to interview (and often hire) jobseekers who were referred by co-workers, colleagues, employees and others whose opinion I respect. Why? These referred people often shared the same work ethic, values, etc. that my current staff possessed. A random hire was an unknown commodity while a referral involved someone putting up their reputation in support of another.
When you run a small to medium sized business (SMB), you have a really tough time identifying and recruiting quality people to work for you. Your firm is not as well-known as a Dow Industrials 30 firm. You can’t advertise for positions in major magazines. Your campus recruiting network is non-existent or underpowered. Recruiting in an SMB is harder and expensive.
I recently got a briefing from Jobvite’s CEO, Dan Finnigan. Jobvite has taken the time to understand the recruiting nuances in the SMB hiring space. They’ve created a solution that optimizes on the social networks, email contacts, etc. that workers within a SMB firm have and they’ve made a deceptively elegant solution that works well with Microsoft Office applications.
But don’t take my word for it, go to their homepage and take their 6-minute demo.
Whenever I hear firms discuss their plans of ‘taking advantage of other people’s social networks’, I get really nervous. Salespeople know what I’m taking about. You move to a new employer and they want you to make your Rolodex, that’s been years in the making, exploited and owned by them. Excuse me? Some of those relationships are personal, not business. Many of those of relationships took decades to craft.
To JobVite’s credit, they’ve taken a more nuanced, considered approach to this matter. They don’t do a blind grab of employees’ contacts. They don’t spam the social networks that their employees belong to either. Jobvite’s SaaS (software as a service) based solution allows the SMB in-house HR manager/Recruiter to craft new job positions and post them to a company branded (Jobvite built) website. This HR manager/Recruiter forwards the new postings to selected employees within the firm and asks them to forward the posting to friends, colleagues, family, etc. These forwarded positions become the Jobvites (i.e., job invitations). Jobvites can be forwarded to anyone in an employee’s Outlook, Gmail or other contact list (e.g., social network).
The solution is actually much broader than this though. It’s actually a very complete recruiting solution that accepts resumes, parses responses, schedules interviews (via Outlook), etc.
In a SMB firm, the HR function is usually overwhelmed. The few people there are trying to do a dozen people’s work. They must cover the entirety of the HR business needs with a paucity of time and resources. HR in a SMB firm doesn’t function optimally as:
- it lacks straightforward systems to complete their work
- it can’t get the IT support it needs for software upgrades or to update the company’s website
- its limited staff can’t be experts in every HR process area or discipline
- etc.
If vendors are to service SMB firms well, they need to craft solutions that:
- are designed from the beginning to serve SMB users and employers not large enterprises
- are really easy to setup and use (repeat this over and over)
- are priced low but still deliver great value
- are highly integrated
- cover entire processes not just components (e.g., source-to-recruit-to-hire vs. benefits enrollment)
- incorporate technologies (e.g., Microsoft Excel) that most customers already use
I liked Jobvite’s solution as it uses a very measured, respectful approach to employees’ social networks. It is also well-thought out and designed for a SMB firm. Unlike enterprise solutions that are dumbed-down for the SMB space, Jobvite feels (to quote Goldilocks) “just right”.
December 21st, 2008
Spammers – Best wishes for 2009!
Satire
While many bloggers and mainstream tech pundits are pulling together their legitimate “Best of 2008” column or “Trends for 2009” predictions, I thought I’d take a different approach this holiday season. I’d like to send best holiday wishes to those tireless workers (and their army of 24/7 zombie computers) who craft the spam that fills up our in-boxes.
1) My first wish goes out to a group of people who all seem to know me but I’ve nonetheless never met. Apparently, we’re somehow related as I’ve been mentioned as a potential inheritor to many of their estates. I hope all the relatives of those people who died in Nigeria, Sierra Leone and other places where the dearly departed left over $1 billion this year alone in special bank accounts are able to find a way to get those monies released without me. You know, your heart has really got to go out to these people who need so many of us to give them our bank info just so they can get some of that cash for themselves. Good luck to all of you!
2) I’d also like to wish a great 2009 to all of those Asian pharmacies who seem to think I need a lot of Viagra. I don’t need the stuff but thanks for asking. Maybe next year, you folks could afford a spell checker so that you can spell all those brand names, like Cialis, the way the manufacturers intended them to be spelt.
3) I’d also like to thank all those folks who emailed me about their lists of doctors and dentists. I hope that next year I can figure out why you think these are valuable. I have a Yellow Pages book at the office that lists hundreds of MDs right here where I live.
4) I’ve also got to thank those spammers who are writing on behalf of the FBI and its Director, Mr. Mueller. Nothing says you’re a ballsy spammer than by spoofing the very agency that investigates these things. Here’s hoping 2009 brings you more oversight from the real FBI.
5) Let’s all send a big wet-one to those dauntless spammers that asked us to confirm our bank accounts. How did we exist all those centuries without electronically verifying the accounts we didn’t even have at banks we don’t even do business with? Thank goodness spammers were on the job here!
6) I’d also like to single out all those spammers who thought I had bought something huge on EBay and forgot to pay for it. Thank goodness they emailed me right away so that I could get my money order or PayPal payment to those needy sellers in Romania.
7) Santa also wanted to get a shout out to those spammers who pitched us all those multi-level marketing opportunities this year. If our house didn’t already have so much junk in it, we might have bit on those offers. Maybe next year fellows…
8) Just today, a lady emailed multiple times telling me that she is selling goods in Europe to people in Asia. Apparently, she needs my help to cash all those checks and money orders that she’s getting. Unfortunately, I don’t use a bank and my mattress can’t process foreign currencies. If only they made an EFT enabled Posturepedic?
9) To all those spammers who think I need breast (or other body parts) enlarged, be advised that the doctor wants me to lose weight these days not put more on. Thanks for asking though.
10) (And last but seriously) Kudos to the folks at Knujon for doing a great job of reducing spam for all of us!
December 19th, 2008
Satyam – Time for a real (early) Spring Cleaning
A Holiday Gift for Litigators?
Could this be the story of the year for 2009?
The news about Satyam in the last few days has been disconcerting, to say the least, and it has thrown a cloud of doubt on the Indian services market overall.
Wachovia Capital Markets, LLC analysts weighed in today with this jewel of a soundbite:
This falls under the category of “what were you thinking.” Leading offshore IT/BPO service provider Satyam
(SAY) proposed using its $1.3 billion in cash to acquire a construction and real estate company named Maytas (i.e. Satyam in reverse) that is controlled by the sons of SAY’s CEO. Institutional investors reacted quickly driving the ADRs down over 50% leading SAY to pull the ill-conceived (in our view) deal.
Source: Wachovia’s Weekly IT/BPO Service Monitor, December 19, 2008
The Motley Fool’s take on the matter was decidedly more pointed. They said:
The IT industry is facing some bleak prospects for the immediate future, and it seemed ludicrous for Satyam to be purchasing the distressed assets of the chairman’s sons’ even if Maytas Properties and Maytas Infra would “de-risk” Satyam’s core business. Instead, it looked like a bailout of family members by overpaying for them (Maytas, by the way, is Satyam spelled backwards). The real estate business, for example, has a net worth of only $225 million, but Satyam was going to pay $1.3 billion for it. In fact, the entire deal would have wiped out all of the company’s $1 billion cash position and substituted a net debt balance of $400 million.
MarketWatch added this perspective (although it wasn’t the only source who questioned governance of Satyam):
The move hit Maytas’ fellow property firms as well. “It’s an overall hit for market sentiment. It reflects poorly on corporate governance in Indian companies, and it’s an issue that investors are now faced with,” Nikunj Doshi, investment manager at Envision Capital, was quoted as saying in a Reuters report.
But as bad as all of the above indicates, the following excerpt from a Upaid press release is, in my opinion the most damning news item related to this story:
Satyam is facing suits in U.S. Federal and State Courts filed by Upaid claiming fraud, forgery and breach of contract, as a result of which Upaid has suffered damages to its business and prospects in excess of $1 billion. The Federal Court proceeding is currently scheduled for a Texas jury trial in June of 2009, and Satyam is facing the potential of a very sizable judgment against it. At present, Satyam has cash resources to pay a $1 billion plus judgment or the liquidity to support a supersedeas bond. However, on December 16, 2008, Satyam announced a plan to strip $1.6 billion of cash out of the company, an amount that exceeds its cash, in a transaction to acquire Maytas Properties and Maytas Infra, whereby the large majority of this cash would go to the family of Satyam’s Chairman, Ramalinga Raju. That Satyam would proceed with a transaction that seems so clearly designed to deplete its assets in advance of a judgment, rightfully concerns Upaid that Satyam may be willing to engage in fraudulent transfers to avoid its legal obligations.
If you’ve got a few minutes, listen to the conference call replay on Satyam’s site where they announced the proposed deal. Investors/Stock analysts had a real problem with this deal and they were quite vocal about it on the call. The best part of the call starts about 15 minutes into the call when investors and analysts questioned management. It’s definitely must-hear material. (Hurry though as this replay is only good for one week from Dec. 16, 2008).
So, what can we learn about this? Not much yet as many facts about this deal may still surface and might change the landscape. However, several things immediately jump out to me for now:
1) SarbOx & Controls Don’t Stop Bad Business Decisions from Happening – Imagine that this was playing out in the U.S. Would Sarbanes-Oxley have prevented this deal from going down? Not a chance. SarbOx documents the daylights out of controls, processes and procedures. It does not and may never prevent fraud, business failures or bad business decisions. This plot involves families, wealth transfer and related parties transactions. If you want to prevent bad decisions from happening, you need independent boards, directors who are active and independent from the CEO and great leaders. Great leaders don’t build businesses at any cost or with any means possible. Great leaders are ethical, visionary and principled. They also possess values and qualities that some televangelists couldn’t live up to. When we learn more of this Satyam situation, I’ll bet we’ll hear some real juicy tidbits.
2) Business Deals that involve family members should be highly vetted in any company – Blood is thicker than water, remember? If you were a CEO, would you put your company’s interests ahead of the wealth accumulation interests of you and your family? If you said ‘yes’, you may be human but you may be a bad choice for CEO. Any deal involving family should be subject to considerable, additional scrutiny and not driven or approved by family members.
3) Litigators are going to be all over this – The Upaid request for depositions is likely to be the first in a salvo of litigation to come. Expect class-action shareholder suits to be filled against the principals of the company as aggrieved shareholders will seek redress for the plummeting value of their stock positions.
Satyam needs to do the following to regain credibility with its clients and the stock market:
1) dump the CEO
2) dump the board and bring in truly independent board members
3) forget the stock re-purchase – it won’t restore confidence until the governance matters are fixed
Satyam competitors may have a great opportunity here. Satyam’s stock is way down because of this. SAY shares on the NYSE closed today at $7 and change. They’ve been as high as $28-29 this year and have recently traded as low as $5.05/share. Satyam could be a hostile takeover target for a firm looking for a significant offshore play (e.g., HP comes to mind). Could someone take BearingPoint and Satyam and make a real player out of this?
source:Yahoo Finance
This blog explores the intersection set between services and technology. If it impacts either space, it will be covered here. Brian Sommer is a former Accenture partner. He did an 18-year tour of duty there and ran three small practice units (Finance Center of Excellence, HR Center of Excellence and Software Intelligence). He’s sold service projects in almost every continent and remains just as current on both services and technology today as ever before. Brian is currently CEO of TechVentive, a strategy consultancy servicing technology providers, and a research analyst with Vital Analysis. See his full profile and disclosure of his industry affiliations.
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