Satyam's downfall

In the past decade where we have seen scandals like Enron, sub-prime crisis etc, really surprises anymore. In India, we have had our fair share of crooks. Even then, I was astonished with the brazenness and audacity of what the promoters of Satyam tried to do yesterday. They announced the acquisition of Maytas Infra and Maytas Properties, which are promoted by the same family and friends of the family. All this for a royal sum of 8000 crores. I immediately sensed this as the biggest diversion (robbery?) of public money since the Reliance Power IPO earlier this year.

The response was immediate with analysts and institutions blasting the move. Ramalinga Raju came on CNBC and bumbled his way through a tough Q&A session. The ADR tumbled by over 55%. All this reaction led to a withdrawal of the acquisition.

I’ve always thought of Satyam (and by association, Raju) as a follower rather than a leader, someone who had no original idea or vision and was always aping the big three of Indian IT (TCS, Infosys, Wipro). His commitment to IT was always suspect. Even if you take away the moral and ethical concerns, the fact that he wanted to diversify into real estate essentially shows where his true interests lie.

I think this is the beginning of the end for Satyam. With its reputation effectively in the toilet with respect to corporate governance, any sane investor or institution is going to dump the stock. This coupled with the tough economic situation is going to lead to very tough future for Satyam. I wouldn’t be surprised to see that it is a shadow of its former self in 2 years time.