Satyam Computer Services has finally got the Securities and Exchange Board of India's (Sebi) approval for a global competitive bidding process.
The information is that 31% would be offered to the bidder, and after that there would be a 20% open offer so that it can go up to 51%. If there is not enough in the open offer there would be a second share issue, and post that, there would not be any requirement for the open offer. Also, there is a criteria of minimum net worth and no other criteria has been mentioned. Satyam is up about 17% today.
Also read: Satyam gets SEBI nod for global competitive bid process
Here is a verbatim transcript of Sajeet Manghat’s comments on CNBC-TV18. Also watch the accompanying video.
On criteria for the bid
What we understand is that when the RFP, or the Request for Proposal comes out, it will have detailed criteria about not only the net assets that are required––the press release clearly states that the net assets should be in excess of USD 150 million––but also finer details about the eligibility, about consortiums whether they can bid in this process or where two participants come together, where PE funds will be invested, whether PE funds can join hands with companies for the entire bidding process. All those clarifications will come in as part of the RFP, and that is expected to come out in the next five days. The entire process is expected to start within the next 10 days.
However, it is important to understand the equity structure of Satyam. There is an equity of nearly RS 67.4 crore shares. The press release clearly states that fresh issue of shares will be made to the bidder, which will come out as part of a transparent auction process. That bidder will initially have 31% of the fully diluted equity, which basically means that we are looking at fresh issuance of roughly around 30.3 crore shares coming into the company.
This is a company that has a huge amount of equity shares. Over and above that, it will come out with 20% open offer, which is around 19 crore shares odd, which the new bidder will have to come out with. The bid price and the open offer price will remain the same. If the stake upholds the open offer and comes down to below 51% it is only then that the second preferential issue would be made to the bidder.
But if you look at the pricing there is nothing that is given in the press release about the base price or any price that would be taken as the base for the bidding. It is an open press release. We expect that this is something that will come out in the RFP or maybe in the pre-bid conference where bidders will ask for the base price, if applicable.
But with the current market price and what markets are talking about, if you look at a range of Rs 50–80 per share, we are looking at any bidder who wants to come in and pick up a 51% stake in Satyam needs to have at least Rs 2,500 crore to 4,000 crore. That is the kind of amount that they should have as bank balance to come and acquire a 51% stake in Satyam.
If you look at L&T, which already holds nearly 12% stake, post the full dilution happens; L&Ts stake will be around 8.5–9% or so. That would mean that L&T post the open offer––if L&T is a successful bidder––will have 59–60% stake in Satyam.
If you look at the press release it very clearly says that the stake sold to the strategic investor, the investor cannot sell-off that stake for the next three years. So there is a lock-in period of three years there. What we are looking at is a long-term player coming into Satyam.
From that perspective, the board will of course have the final say in terms of business continuity and players who will come in and bring in the expertise from the management side.
On three year lock-in period
It has to be a long-term investor plus the fact that it has to be on business continuity. The board has to take a decision on that because ultimately the reason why you are asking for a bid or auction process to come in is to bring in a strategic investor who can take the business forward from here on. You cannot have an investor who will go out of the company three years from now. So that is not the consideration there.
The question is whether an IT company will be the eligible company or whether investor that comes in should have IT expertise or experience. That is something that the board will answer at some point in time. But that is one of the key questions that anyone will ask the board. Hopefully, the RFP or the Expression of Interest will be released by the board and has all those criteria that you should have a relevant amount of experience in terms of managing the company, or having the expertise in the IT space.
Source
The information is that 31% would be offered to the bidder, and after that there would be a 20% open offer so that it can go up to 51%. If there is not enough in the open offer there would be a second share issue, and post that, there would not be any requirement for the open offer. Also, there is a criteria of minimum net worth and no other criteria has been mentioned. Satyam is up about 17% today.
Also read: Satyam gets SEBI nod for global competitive bid process
Here is a verbatim transcript of Sajeet Manghat’s comments on CNBC-TV18. Also watch the accompanying video.
On criteria for the bid
What we understand is that when the RFP, or the Request for Proposal comes out, it will have detailed criteria about not only the net assets that are required––the press release clearly states that the net assets should be in excess of USD 150 million––but also finer details about the eligibility, about consortiums whether they can bid in this process or where two participants come together, where PE funds will be invested, whether PE funds can join hands with companies for the entire bidding process. All those clarifications will come in as part of the RFP, and that is expected to come out in the next five days. The entire process is expected to start within the next 10 days.
However, it is important to understand the equity structure of Satyam. There is an equity of nearly RS 67.4 crore shares. The press release clearly states that fresh issue of shares will be made to the bidder, which will come out as part of a transparent auction process. That bidder will initially have 31% of the fully diluted equity, which basically means that we are looking at fresh issuance of roughly around 30.3 crore shares coming into the company.
This is a company that has a huge amount of equity shares. Over and above that, it will come out with 20% open offer, which is around 19 crore shares odd, which the new bidder will have to come out with. The bid price and the open offer price will remain the same. If the stake upholds the open offer and comes down to below 51% it is only then that the second preferential issue would be made to the bidder.
But if you look at the pricing there is nothing that is given in the press release about the base price or any price that would be taken as the base for the bidding. It is an open press release. We expect that this is something that will come out in the RFP or maybe in the pre-bid conference where bidders will ask for the base price, if applicable.
But with the current market price and what markets are talking about, if you look at a range of Rs 50–80 per share, we are looking at any bidder who wants to come in and pick up a 51% stake in Satyam needs to have at least Rs 2,500 crore to 4,000 crore. That is the kind of amount that they should have as bank balance to come and acquire a 51% stake in Satyam.
If you look at L&T, which already holds nearly 12% stake, post the full dilution happens; L&Ts stake will be around 8.5–9% or so. That would mean that L&T post the open offer––if L&T is a successful bidder––will have 59–60% stake in Satyam.
If you look at the press release it very clearly says that the stake sold to the strategic investor, the investor cannot sell-off that stake for the next three years. So there is a lock-in period of three years there. What we are looking at is a long-term player coming into Satyam.
From that perspective, the board will of course have the final say in terms of business continuity and players who will come in and bring in the expertise from the management side.
On three year lock-in period
It has to be a long-term investor plus the fact that it has to be on business continuity. The board has to take a decision on that because ultimately the reason why you are asking for a bid or auction process to come in is to bring in a strategic investor who can take the business forward from here on. You cannot have an investor who will go out of the company three years from now. So that is not the consideration there.
The question is whether an IT company will be the eligible company or whether investor that comes in should have IT expertise or experience. That is something that the board will answer at some point in time. But that is one of the key questions that anyone will ask the board. Hopefully, the RFP or the Expression of Interest will be released by the board and has all those criteria that you should have a relevant amount of experience in terms of managing the company, or having the expertise in the IT space.
Source