The revenues of Satyam are as yet unknown. As are the state of the finances - except to say that the company is scrambling to raise a loan to pay salaries for the month. Clients will bolt as soon as they can, as will employees. The class action suits, and the as yet, undecided case of Upaid, remains. Why buy more shares at this time? This is the question that the independent directors of Larsen must ask when they get together on the 3oth of this month to discuss the results for the quarter. Failure to do this would amount to dereliction of duty and should form a fit case for shareholder activism.
L&T had, presumably, identified Satyam as a possible investment candidate at an earlier date. However, to suggest that this identification remains valid even as the skeletons have not finished rolling out of the cupboard, requires a huge leap of faith and a degree of nonchalance in the use of shareholder funds bordering on negligence. To risk a significant portion of the capital of the company in an unrelated "di-worsification" (to use a term from Peter Lynch's famous book) takes the cake.
The way the deal was executed too, leaves room for suspicion. The exchanges seem to record only one buyer of the size reported. Who is the seller? If there was a single seller, it should have been reported on the other side of the trade - after all it is a "bulk deal". This seems to lend credence to the rumour doing the rounds that L&T actually purchased all the Satyam shares on the day that Raju made his declaration, when the share were in a free fall. However, the rumour goes, once the company realised the magnitude of the fall, they requested the transacting broker to hold the position, with a promise to take it on their books at a later date.
This rumour, even if untrue (and I sincerely hope it is - after all who could have funded such a large trade) needs to be suo moto investigated by SEBI. If true, it will mean that a large amount of money may still remain to be paid to some intermediary since the price difference is unlikely to have gotten fully adjusted - bad news indeed for Larsen shareholders. It will also open a whole new can of worms with regard to practices of corporate governance in India despite protestations to the contrary.
Even if we were to take the deal at face value, shareholders need to ask the L&T management some tough questions:
- who authorised the purchase of such a large quantum of shares
- was there a shareholders or board approval taken for a "strategic" investment of this magnitude - after all, if no white knight appears, Larsen is now the main shareholder in Satyam
- Is there a plan on how to revive Satyam and put it back on track. Who has made it and how could it have been made without getting a full picture of the assets and liabilites of Satyam
- Will Larsen step in as a "promoter" to invest in Satyam? What will it do in the event the latter becomes insolvent
Assuming that the right questions are asked, we could see new leadership in Larsen. In any case, the shareholders of Larsen have every reason to feel fearful of the status of their investment. Yet another case of non-alignment of interest of management and shareholders - something I had commented on earlier. For the un-involved, the movie promises to be interesting.
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