Tech Mahindra made the highest bid for Satyam at 58 rupees, or $1.16, a share, the board of Satyam said Monday. The offer topped bids from the Indian engineering company Larsen & Toubro, which already owns a 12 percent stake in Satyam; and from the American venture capital investor Wilbur L. Ross Jr.
Tech Mahindra, which provides information technology services to the telecommunications industry, would be taking over a company about twice its size. Satyam reported $2.1 billion in revenue in 2008, versus $935 million at Tech Mahindra. (Satyam is in the process of restating its financials, so those numbers may change.) Tech Mahindra’s work force is about half the size of Satyam’s most recent count of 53,000.
The price is a 23 percent premium over Satyam’s most recent closing but represents a fraction of Satyam’s worth a year ago. The company has been losing clients, investors and employees since its chairman admitted to accounting fraud in January.
“The selection of the highest bidder, in a fair, open and transparent process, signals a new stage for the company in its progress towards stabilization and growth,” the chairman of Satyam’s board, Kiran Karnik, said. “We hope this will infuse greater confidence and comfort amongst customers.”
Tech Mahindra’s bid is for 31 percent of Satyam. Under the terms of Tech Mahindra’s bid, it would make a later offer for an additional 20 percent of Satyam shares on the open market, which would give it a controlling stake.
Tech Mahindra’s bid beat Larsen & Toubro’s offer of 49.50 rupees a share, and Mr. Ross’s 20 rupees a share.
Cognizant Technologies, based in Teaneck, N.J., performed a due-diligence investigation into Satyam but did not make a bid, people involved in the deal said. A spokesman for Cognizant had no comment.
Satyam was one of India’s largest information technology companies, with more than 50,000 employees and market capitalization of more than $7 billion, before the chairman, B. Ramalinga Raju, said in January that he had falsely claimed assets of about $1 billion in cash and inflated the company’s operating margins.
Indian investigators have since said that more than a dozen people in the company’s finance department were involved in the fraud, including a team that had churned out fake invoices and bank statements.
Satyam serves as the back office and information technology provider for hundreds of companies, including Nestlé and General Electric. The Indian government took control of the company after the fraud was revealed and pushed through a quick sale to prevent losses in the country’s $71 billion outsourcing industry.
The bid announcement Monday came 13 weeks after Satyam’s chairman admitted to the accounting fraud. Satyam still faces several class-action lawsuits from investors, mainly in the United States, and any buyer would be liable for any damages awarded in those suits.
More than half of Tech Mahindra’s business is serving one client, the British telecommunications company BT, which owns 31 percent of Tech Mahindra. Last May, Tech Mahindra signed its largest outsourcing deal ever, a $700 million contract with BT.
The Satyam deal would bring Tech Mahindra into new industries, from manufacturing to financial services, and make the company India’s fourth-largest outsourcing firm, by employee count, behind Tata Consultancy Services, Wipro Technologies and Infosys Technologies.
“Tech Mahindra has a broader plan for expansion,” said Sudin Apte, an analyst with Forrester Research in Pune. The winning bidder is seeing an “opportunity, rather than just taking over Satyam’s clients.”
Mr. Apte said that some Satyam clients, however, might be concerned about Tech Mahindra’s lack of experience in industries outside of telecommunications.
India’s Company Law Board must review the bid and approve the transaction. Shares of Satyam shares closed up 3.2 percent in Indian markets on Monday, to 48.75 rupees. Shares of Tech Mahindra closed up 11.9 percent, at 358.35 rupees.