Satyam Poised to Name Winning Bidder Today to Regain Confidence

April 13 (Bloomberg) -- Satyam Computer Services Ltd. will announce the winning bidder for a controlling stake in itself today, a step toward assuring the future of the company at the center of India’s biggest corporate fraud inquiry.

U.S. billionaire Wilbur Ross and India’s Larsen & Toubro Ltd. are among parties that may seek to acquire what was once the country’s fourth-largest software-services provider. Satyam will disclose the auction’s result at 9 a.m. Mumbai time.

The sale aims to restore investor confidence and stem client defections at Satyam after former Chairman Ramalinga Raju said he inflated assets by more than $1 billion. The buyer gets control of about 50,000 employees servicing customers including Cisco Systems Inc. and Nestle SA.

“The price you are paying is really for the contracts and the employees,” said Kimberly Caughey, senior equity analyst at Fort Pitt Capital Group Inc. in Pittsburgh. “It’s costly to acquire new people through the regular HR mechanism, but to be able to do it in one fell swoop, I think that’s a real win.”

Satyam rose 3.5 percent to 47.25 rupees on April 9, valuing the company at 31.8 billion rupees ($637 million). The company has lost $1.8 billion of its market value since Raju’s admission.

If the highest bid is less than 10 percent greater than other offers, an open auction will be held to determine the winner, Satyam said April 2. The company will seek government approval of the new investor on April 15 and may hold a press conference by the end of this week, Chairman Kiran Karnik said yesterday.

Likely Bidders

Larsen, India’s biggest engineering company, hired Nomura Holdings Inc. and Citigroup Inc. to advise on a possible bid, a company executive who declined to be identified said last month. Larsen, Satyam’s largest shareholder with a 12 percent stake, sees Satyam as a way of expanding unit L&T Infotech, Chairman A.M. Naik said in January.

Ross, who last week described the software provider as “an interesting company” in a Bloomberg television interview, said he was barred by Indian rules from talking about any interest in buying the company.

Cognizant Technology Solutions Corp., a Teaneck, New Jersey-based software-provider, may team up with Ross for a bid, the Business Standard reported April 4, citing a banker familiar with the developments.

Withdrawn Rating

Indian software-service provider Tech Mahindra Ltd., partly owned by BT Group Plc, last month expressed its interest to bid for Satyam, prompting Fitch Ratings to withdraw its debt rating on the company.

Raju’s disclosure triggered probes including inquiries by India’s Serious Fraud Office and markets regulator and several lawsuits by investors in the U.S.

Concerns over lawsuits and lack of financial information prompted IGate Corp. to pull out from the bidding process last month. Satyam financial statements are being reviewed by KPMG and Deloitte Touche Tohmatsu after Satyam’s former auditor, the Indian affiliate of PricewaterhouseCoopers LLP, said in January its audit reports on the software maker were no longer reliable.

Satyam may fail to sell a stake because a lack of financial data and legal liabilities may deter buyers, the Financial Express reported April 7, citing a Forrester Research Inc. note to clients.

Criminal Investigation

India’s Central Bureau of Investigation on April 7 filed charges against founder Raju for his role in the fraud. The charges include criminal conspiracy and falsification of accounts, and carry a maximum penalty of life in prison, CBI Deputy Inspector General V.V. Lakshmi Narayana said at the time. Raju’s brother and former managing director, Rama Raju, and two partners at Price Waterhouse were among nine people charged.

Satyam has lost outsourcing contracts from about 46 customers to rivals such as International Business Machines Corp., Tata Consultancy Services Ltd. and Wipro Ltd., Economic Times reported March 17, citing an unidentified person familiar with the developments.

The United Nations said March 23 it will terminate its existing contracts with Satyam. In January, State Farm Mutual Automobile Insurance Co., the largest home and auto insurer in the U.S., canceled its order in the wake of the accounting scandal. Still, Cisco, the world’s largest maker of networking equipment, won’t scrap its contract with Satyam, Chief Executive Officer John Chambers said on Feb. 12.

Satyam may have also lost employees to customers and rivals. Bank of America Corp. may have hired as many as 300 people from Satyam, the Business Standard newspaper reported April 1, citing some of the employees without identifying them.

Satyam’s contracts and software engineers may still make it an interesting target, Fort Pitt’s Caughey said.

“It all goes back to the basic business,” she said. “If the basic business is run soundly and they have good engineers working for them, it’s something that” a rival should pursue.