Date:14/01/2009 URL: http://www.thehindu.com/2009/01/14/stories/2009011460601000.htm

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Independent directors put tough questions, but gave blank cheque

S. Nagesh Kumar

Approval was given even after raising doubts about property valuation
Board members wanted compliance for the comments made by all of them

HYDERABAD: The six independent directors of Satyam Computer Services Limited may have a lot of explaining to do for giving virtually a blank cheque to the Raju brothers, now in the Chanchalguda jail, to go ahead with the $1.615 billion (Rs. 7,914.10 crore) acquisition of Maytas Properties and Maytas Infra after posing a number of tough questions.

These members, including two who participated through an audio conference from the U.S., gave the green signal to the former chairman, B. Ramalinga Raju, and the former managing director, B. Rama Raju, after raising several doubts, particularly about the valuation of Maytas Properties, and gave prescriptions on how to go about it.

Yet, they unanimously approved the resolutions on the twin acquisitions, the minutes of the board meeting held on December 16 show.

The Raju brothers abstained from the discussion and voting as they said they were interested parties, and the former Dean of Indian School of Business, M. Rammohan Rao, presided over the meeting.

After approving the proposals, the board members wanted compliance with the comments made by all of them at the meeting “without prejudice to the unanimous approval.”

They particularly insisted that proper justification be provided to them whether the valuation of Maytas Properties (which has a land bank of 6,800 acres) was significantly higher than the aggregate of the actual value of completed projects, the current market realisation value of the ongoing works and the basic market value notified by the government.

This formula was suggested by the former Cabinet Secretary T.R. Prasad.

During the meeting, Ms. Mangalam Srinivasan sought to know if there was any particular reason for this initiative and timing of the acquisition proposal. She also described the deal as “encouraging good news.”

Professor Rammohan Rao asked if the move would dilute core competency in IT business and about the risks involved in the diversification strategy.

Professor V.S. Raju and Mr. Prasad said the pricing (Rs. 490 a share for Maytas Infra) was generous.

Mr. Vinod Dham felt that it was important to demonstrate how the acquisition would benefit the shareholders as it was a transaction between related parties. Mr. Prasad said infrastructure was clearly seen as a definitive growth story.

Soon after the board meeting concluded, Satyam Computer Services Limited informed the Securities and Exchange Board of India, the BSE and the NSE of its decision to acquire the two companies.

Later, Mr. Ramalinga Raju and Chief Financial Officer Srinivas Vadlamani conducted a teleconference with stakeholders, investors and analysts, who condemned the decision and revolted against the management. Asking Mr. Raju to step down, one investor even said, “You have brought the Indian corporate governance practice under a cloud.”

With American Depository Receipts taking a nosedive by 55 per cent, the company was forced to retract the decision within eight hours of its announcement, signalling the start of Satyam’s downhill journey.