Satyam Computer to buy Sify's software business

By K. T. Jagannathan

CHENNAI, OCT. 24. In a move that should facilitate dithering strategic investors to make a beeline for Nasdaq-listed company, Satyam Infoway (Sify) has decided to sell its software development business to its parent Satyam Computer Services (SCSL).

The move is seen as a prelude to SCSL selling its stake, either wholly or partly, to strategic investors.

The software development business constitutes 20 per cent of Sify's $10.9 million revenue for the quarter ended September 2001. About 235 people are reportedly employed in the software development activity. The software services business of Sify covers IT services in India, the U.S. and Australia.

The move will see the company becoming a pure Internet and related services firm. This will also make Satyam Computers Services a pure software development company.

The divestment of software development business will leave Sify focus on four core activities - corporate connectivity, home access, cyber cafe and portal. Save for portal, the rest are claimed to be `sure shot' businesses for Sify.

Since SSCL has decided to off-load its stake in Sify, it wants to ensure that it does not end up competing with the latter in the post-sale scenario.

A release from Satyam Computer Services said the company believed that both Satyam and Sify would gain by becoming `pure play companies' in their respective spheres - Stayam in IT services and Sify in Internet arena.Sify spokesman said an independent consultant would determine the fair value of the software business of the company. The entire process of divestment, he claimed, would be completed by January next. Sources said the software development business of Sify would be worth about $7 million.

A company release quoted Mr. Ramaraj, Managing Director, as saying that the move would not have any adverse impact on Sify's EBITDA (earning before interest, tax, depreciation and amortisation) levels and its march towards profitability.

The `software development business', informed sources said, had proved a `bone of contention' between Satyam and Sify. Sometimes both were going after the same business. The parent had, on several occasions in the past, raised this issue with Sify mandarins. The divestment of software development business of Sify in favour of Satyam, insiders said, should have positive fallouts on both over a long-term. The move for divestment of Satyam stake (about 52 per cent) in Sify to strategic investors was also read in the context of the former's keenness to consolidate its core competence, that is, software development.

From Sify's point of view, the sale of software business will fetch good revenue in the near-term. Sources said, in any case, Sify won't be able to scale up the software business, unlike its other activities, with the existing investment. Hence, Sify, it was argued, thought it prudent to hive it off.

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