Satyam appoints new CEO, gets funding approval
Bangalore, February 5, 2009
The new board of fraud-scarred Satyam Computer Services on Thursday appointed A S Murty as chief executive, and said it had bank approval for funding of 6 billion rupees ($123 million) to meet capital requirements.
The government-appointed board's decision came as a potential bidder said it would not increase its stake in Satyam for now and a customer suspended new contracts in the wake of India's biggest corporate scandal.
Murty, a Satyam executive for 15 years, will be the chief executive with immediate effect, the company said in a statement.
"This company is up for grabs in a way," said Sudin Apte, country head of market research firm Forrester. "And I think the pace at which things are happening, it may happen much faster than anticipated."
Satyam, a provider of software and back-office outsourcing services, has been battling for survival since Ramalinga Raju resigned as chairman on Jan. 7, revealing profits had been overstated for years and that $1 billion of cash and bank balances on the company's books did not exist.
The board has been working to revive the confidence of its more than 600 clients and about 50,000 staff. And it said: "This funding, along with healthy collections, is expected to help the company tide over its financial challenges."
National Australia Bank (NAB), Australia's largest lender, said it would suspend new contracts awarded to Satyam, which provides software and back-office outsourcing services.
NAB said Satyam, whose other clients include General Electric, Telstra Corp and Cisco, continued to meet existing service level commitments and contractual obligations towards the bank.
"However, until the longer-term future of Satyam becomes clearer, NAB will suspend all work currently in the early stages of transition to Satyam," a spokeswoman said in an e-mail.
Last month, Satyam said US-based State Farm Automobile Insurance had terminated its outsourcing contract.
Separately, engineering major Larsen & Toubro (L&T), seen as a front-runner for buying Satyam as it is the firm's biggest shareholder, said it had not raised its stake further and would wait for decisions by the market regulator and Satyam's board.
Last month, L&T trebled its holding in the outsourcer to 12 percent. Under Indian law, increasing a stake to 15 percent triggers an automatic offer for another 20 percent at a price not less than the average of the previous six months.
Satyam shares have plunged since mid-December, first on a planned deal to buy related firms and then the fraud. They fell 7.7 percent to 46.25 rupees on Thursday, less than one-fifth of a 26-week average of about 255 rupees at the end of last week.
The Securities and Exchange Board of India (SEBI) said on Monday it would change its rules on mandatory open offers, but gave no other details.
The Times of India, in an unsourced report, said some of Satyam's six board members had objections to L&T as a potential suitor because a senior official of state-run Life Insurance Corp (LIC) was on the outsourcer's new board.
LIC is the biggest shareholder in L&T, and also has a stake in Satyam. Some board members thought a deal with L&T could be tantamount to a related party transaction, the paper said without saying how it obtained the information.
Apart from L&T, India's Spice Group, US-based outsourcer iGate Corp and the Hinduja Group have also expressed their interest in acquiring a controlling stake in Satyam.
The Times also reported a team from the US Securities and Exchange Commission (SEC) was in India to meet Satyam's new board after seeing market regulator officials.
Satyam said it appointed law firm Wachtell, Lipton, Rosen & Katz to address class action suits in the United States and to support it in its dialo