India's Enron!

What happened?

Satyam Systems, a global IT company based in India, was found to be involved in fraudulent financial activities. The rough time for Satyam began in December last year when the world bank barred it for 8 years on account of "improper benefit to bank staff" and "lack of documentation on invoices". This was reported as the harshest sanction ever made by the bank since 2004! During the same time the "Satyam - Maytas" deal was facing the heat from its investors and the Indian government. Satyam's controversial decision to buy two unrelated business groups - Maytas infra and Maytas properties, both owned by the chairman's(Ramalingam Raju) son, led to adverse reactions from the investor community. This deal was called off within 24 hours of it's approval!

As predicted by many, Satyam's CEO Ramalingam Raju resigned on the 7th of January 2009 after notifying the board members and the SEBI that Satyam's accounts had been falsified. Following this announcement some US firms like Merrill Lynch terminated their contracts with the company, New York Stock Exchange halted trading Satyam stock and Satyam was also stripped off a prestigious corporate award that it had won in 2008. Needless to say, the employees of Satyam, it's customers and investors were both shocked and angry!

Resolution?

The Indian government dived in and appointed a new set of respectable members to Satyam's board so that this issue could be analyzed with seriousness and speed. The bidding process was kicked off soon after to select a suitable investor for Satyam. The new board shortlisted 6 bidders including Spice, L&T, Tech Machindra in one of it's last bidding rounds. Finally, on April 13 2009, Satyam saw some ray of hope when Pune based Tech Mahindra, a mid-tier IT services provider outbid its competitors for a 51% stake in the company.

What lies ahead?

Tech Mahindra is focused on the Telecom industry and most of its business comes from "British Telecom". The acquistion of Satyam will definitely help it diversify in other veticals like manufacturing, healthcare, financial services and auto along with Telecom and also enable it to expand itself in other markets like North America.

Will the name "Satyam" be retained? While many feel that the brand "Satyam" has lost its credibility, there are a few who still believe in it. I agree with the latter group. The employees of Satyam were not even aware of this fraud and the company's core values still stand strong. Why punish the brand for the misdeeds of a few? Besides, this acquistion in reality is more of an integration into Satyam as it has a bigger client and resource base. Well, here's the dilemma - The brand "Satyam" needs to be reduced in some way due to the bad reputation that it gained recently. On the other hand, it is more well known and better established than "Tech Mahindra". Some trade off would definitely be needed while blending these two brands. I sincerely hope it's in the best interests of both the companies.