Satyam Saga

When Satyam's problems started in mid December at that time only I thought of not posting much about the same as everybody will be writing about that only in blogs, news papers, TV & etc. But today one of my friend asked me to post some information about pre & post Satyam's CEO Mr. Raju admission of fraud. So today I am just giving brief information what all went on in this one month...

As Mr. Raju wrote in RESIGNATION LETTER inflation of balance sheet went on for several years. According to fresh news coming in now, Raju did it for nearly 7 years. Basically inflation cash/profit/balance sheet is done to inflate the EPS, so to increase the share price and in turn attract the investors. And according one brokerage firm, in India nearly 20% of BSE500 companies inflate the balance sheet for the same reason. So this act of Raju's continued and might have become uncontrolled & difficult to fill the gap between the actual profit & inflated balance sheet as mentioned in his resignation letter.

So at that point Raju might have decided to fill that gap acquiring his family promoted real estate business in the name of DIVERSIFICATION and pay the acquisition amount later. And fit those assets into the built up gap. To this decision investors in domestic & overseas market ADVERSELY reacted by dumping the shares ADRs 30% & 50% respectively.

So to get back the investor's faith for the company, Raju & so called board CALLED OF THE DEAL & DECIDED TO BUYBACK the shares. After this point, Satyam's CORPORATE GOVERNANCE came under heavy criticism. Government ordered PROBE also. In between there were talks about the DIVIDEND also. In addition to all these there came one more sudden shock for Satyam in the form of the BAN for 8 years. Due to all this, independent directors started RESIGNING. By this time Satyam became talk of everybody on the WALL STREET & DALAL STREET. Then ultimate blow came in the form Founder & CEO Mr. Raju's resignation letter and inflating the balance sheet. Within 2 days of this, Satyam stock fell nearly 90% in NSE, BSE & NADAQ. And immediately NASDAQ stopped trading of Satyam stock & NSE, BSE they removed it from the index.

After this, as suggested by Raju (or even other wise, according to seniority) Mr. Ram as the interim CEO and formed the Task force. CFO also resigned. Government superseded the interim body & CEO. And now government appointed three independent directors (banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C Achuthan) to look after into the matters of the company.

But I am quite surprised to know that, a Company like Satyam which has a base in 60 countries is or was running only 3% margin of profit! There employees salary itself is 500 crore rupees for a month. Even for that also they dont sufficient funds for January month. Now news is coming that government is temperorily bailing out the Satyam by supporting it financially.

Here comes one more question is what the so called auditors (PWC) were doing? Whether they are also involved in this India Inc's biggest fraud of 7000+ crore rupees. Being public limited company also Satyam did this, then what about the private ltd companies???

Now there talk about appointing the CEO & CFO. But I dont know being outsiders, how they are going act immediately which is very necessary now. But what about the reputation as Company it lost already in the national & international arena. Who is going to believe it? How it is going to get the new projects when there is threat of reduction in the outsourcing after Barrack Obama comes to power! What about the employee? How it is going regain their confidence back?

Bottom line:

What I see is the best solution is allow the different companies to acquire the different branches of the company instead of rebuilding the company so that existing employees work under the name of acquired company. Since in this recession period acquiring company as whole will be burden for the companies also. And rebuilding of the Satyam means sacking of 10000-15000 employees or more than that. That hurts more in this recessionary period. For further information CLICK here...