BANGALORE: Shares in Satyam Computer Services pulled back from steep losses on Wednesday on market talk the outsourcer may see a takeover bid
after its valuation plummeted on corporate governance concerns.
Satyam's shares have plunged 40 percent since the firm said last week it would pay $1.6 billion for two infrastructure firms in which its management held stakes and after it emerged it had been barred from business with the World Bank for eight years.
The company dropped the plan to buy the two firms within hours after investors reacted angrily.
Shares in Satyam, India's No. 4 software exporter, ended down nearly 4 percent at 134.95 rupees in a Mumbai market that fell 1.2 percent. The stock shed as much as 18 percent during trade to its lowest in five years.
Asked what led to the pullback, R.K. Gupta, managing director of Taurus Mutual Fund which holds Satyam shares, said there were rumours in the market Satyam may see a takeover bid.
"The promoter stake is very low and therefore it can become an easy takeover target," Gupta said.
A spokeswoman for Satyam said as a policy the company did not comment on speculation. Satyam director Ram Maynampati said in a newspaper last week the company could not rule out a hostile bid.
Satyam's market value has plunged 40 percent to 91 billion rupees ($2 billion) since it announced plans to buy the sister firms, as a slew of brokerages downgraded the stock and worries grew about its business prospects.
The firm's promoters, headed by its chairman B. Ramalinga Raju, held just 8.74 percent in Satyam as on March 31, 2008, while institutional investors owned 61 percent of the company, according to information available on Satyam's website.
"At this level, Satyam is an interesting candidate for takeover because fundamentally it's a strong company," said Harit Shah, sector analyst with Angel Broking. "Valuations are cheap but the management needs to be changed."
BUSINESS PROSPECTS
Analysts say while the World Bank's decision was not linked to Satyam's botched attempt to buy the sister firms, the information had come at a time when investors were worrying about its prospects, already being hit by the economic slowdown.
"Going forward acquiring new clients is going to be more difficult for Satyam," said Kevin Trindade, a sector analyst with brokerage KR Choksey Shares and Securities, which has a hold rating on the counter.
"Satyam will face pricing decline given the dent in corporate governance," he said.
The World Bank said in a statement on Tuesday its decision to bar New York-listed Satyam took effect from September.
"Satyam was declared ineligible for contracts for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors," it said.
Satyam specialises in business software and offers back-office services, but the size of its business with the World Bank was not available, and a company spokeswoman has said the Hyderabad-based firm does not comment on individual clients.
The company, whose clients include General Electric, Nestle and Qantas Airways, cut its sales forecast in October.
It said revenue would grow between 19 percent and 21 percent in U.S. dollars in the year to March 2009, slower than the 24 to 26 percent growth seen in July.
The firm may try to placate shareholders by buying back shares, a move its board will consider next week, but analysts said it would have to do more to restore investor confidence.
"I don't think any buyback or dividend, even if they are substantial, are going to change the mood of investors now," said an analyst with a Mumbai brokerage, who didn't want to be named as he was not authorised to speak to the media.
"What is required now is an independent board of directors and professional management. The promoters can stay there as pure shareholders," he said.
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