India's Satyam Computer Finds a Buyer

Satyam Computer Services, the Indian I.T. and outsourcing giant that was nearly sunk by its founder's billion-dollar accounting fraud, has been sold to a smaller rival in an unusual auction in which bidders were unable to assess the true financial standing of the company.

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Tech Mahindra, a Pune-based telecom-solutions provider, won the auction on Monday, agreeing to buy 31% of Satyam for $352 million, a 23% premium to Satyam's last closing price on Thursday. Tech Mahindra plans to make a public offer to acquire 20% more of Satyam shares to gain a majority stake, as required by Indian law, taking the cost of the deal to $580 billion. (Read TIME's 2006 cover story about telecommunications in India.)

That's far less than the $7 billion stock-market valuation Satyam, India's fourth-largest I.T. company, once enjoyed before the scandal. In January, Satyam founder and chairman B. Ramalinga Raju confessed that accounts at had been fudged for years and that assets and profits to the tune of $1.6 billion did not exist. The government subsequently stepped in, appointing a board of directors to try to stabilize Satyam until a buyer could be found.

The purchase is a gamble by Tech Mahindra, which is joint venture between Indian Mahindra & Mahindra and British Telecom. Accountants are still trying to unravel years of fraudulent accounting; bidders had little access to reliable financial data, and there is additional risk of class-action suits and litigation in the U.S. relating to the fraud. Other interested buyers, including IBM and India's Spice Group, withdrew because of the uncertainties. "It's a very risky bet," says New Delhi-based equities analyst Dhirendra Kumar. "The reward or penalization could match the risk." Tech Mahindra has yet to issue a comment, but Satyam has said in a statement that the deal 'signals a new stage for the company.' (See pictures of the global financial crisis.)

If all goes well, the deal could propel Tech Mahindra into the top tier in Indian software services. Satyam's client base, which includes Cisco Systems and Nestle SA, would reduce the company's heavy reliance on British Telecom, its biggest customer. The markets gave the purchase a thumbs-up. Tech Mahindra shares were up 12% at the end of trading Monday, while Satyam shares were up 3%. Also applauding the deal were India's business groups. "The smooth completion of the bidding process for Satyam demonstrates that India has an adequate legal and institutional mechanism for handling and resolving a major corporate crisis," says Harsh Pati Singhanisa, president of New-Delhi-based Federation of Indian Chambers of Commerce and Industry. "With this, Satyam will move for stabilization, its market value will get stabilized, benefiting both its clients, employees and all stakeholders," says Sajjan Jindal, president of the Associated Chambers of Commerce and Industry of India.

However, the fate of the embattled I.T. company will not be known until accounts are restated and the new owners have had time to complete the acquisition. "It would not be wrong to say the deal could still blow up in the buyer's face," says Kumar. "The action will take a few more months to unfold."

On April 7, India's federal crime bureau filed charges against nine people including Raju, Satyam's former chief financial officer Vadlamani Srinivas, former managing director Ramadan Raju and two former external auditors of Price Waterhouse. All of them are currently in jail.

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