The Hindu Business Line : ‘It is a tribute to Team Satyam & their capability’

Since Tech Mahindra’s customers are mostly different, it means tremendous possibilities in terms of cross-leveraging and cross-selling of IT services. — Mr Kiran Karnik, Chairman of Satyam board

Moumita Bakshi Chatterjee

New Delhi, April 17 The easy smile is so characteristic of the man himself. And yet, this time around, it also comes with the satisfaction of having scripted the sale of a company that many believed was beyond repair just a quarter back. Mr Kiran Karnik, Chairman of Satyam board along with five other Government-appointed nominees, put the IT company on the block and found a new match for Satyam in Tech Mahindra.

Mr Karnik is confident that Tech Mahindra has the ability to steer Satyam around in terms of cash flow and new business. Between back-to-back calls with Satyam clients and preparing for the next board meeting, Mr Karnik speaks to Business Line. Excerpts:

The bidding process for Satyam is over. As the Chairman of the board, how does it feel?

It has been a great experience. All of us on the board felt it was a critically important issue for Satyam, its 50,000 employees and equally important for the sector because we wanted to show that the Indian IT industry is resilient…That it can face crisis, and overcome it. Also, it was a matter of the country’s image. So our ability to handle the crisis was paramount.

Looking back, it is satisfying to see that all the people involved worked so well together. The Government and the corporate sector, including individual professionals, worked as a team to ensure that the process (of rebuilding Satyam) was smooth, transparent and quick. In this case, all the three elements were key.

Had we waited, the customers and employees would have walked away. Transparency too was essential, as there had been a case of fraud. We also wanted to ensure that there were no jolts…So customers must not see a break in service… Similarly, with employees we had to make sure that they do not lose confidence or get demotivated. And I am pleased that all the feedback that I received from customers has confirmed that the delivery continues to be just as good as earlier, and in some cases even better.

That is a great tribute to the team at Satyam and what they are capable of. And in some indirect way I take it as a vote of confidence on the Satyam board, and the Government.

Did the highest bid at Rs 58 a share come as a surprise to the board? What was your biggest concern as Satyam went under the hammer?

We were worried about the level at which the bids would come in, as there was no floor price. So in that sense there was no protection. Suppose the bids had come in low, we would have been caught in a dilemma…Now I can speak of this candidly…If you wait too long there is depletion in the value — customers hate uncertainty and so do employees. Therefore, closing it quickly was essential and yet what do you do in case, for some reason, the price bids are not satisfactory…

Also, in terms of the price, do you look at what it should be valued at today or do you say if we don’t do this right away, there could be a bigger disaster. That’s a tough one! So we were hoping that the price bids would be right.

There were uncertainties, and so you could not value it like you would in a traditional bidding. Given that situation, we are happy with the bids we received. It is a good price. Frankly, I feel that the company is worth a tremendous amount, but it involves people putting in money and effort. Satyam has strong capabilities, marquee clients, good systems and processes, so if other companies in its peer group are valued at a certain level, there is no reason why it should not be able to touch the same valuation. Despite all its problems, I am sure Satyam can be built-up to that kind of valuation once again, with good management.

Do you see a strategic fit between Satyam and Tech Mahindra?

Tech Mahindra is a good company. The Group has great standing and a strong reputation. To me, it is a good thing that it is a company that does not have an overlap with Satyam. From employees’ point of view too that is particularly good because when you have an overlap it means rationalisation straightaway. Here, because they are in different areas, if and when a merger takes place it is unlikely that there would be much change…Not just in terms of rationalisation, but even in terms of hierarchy of professionals. There are complementarities, and very little overlap.

Second, since their customers are by and large different, it means tremendous possibilities in terms of cross-leveraging and cross-selling of IT services. In that sense I foresee a lot of value being created.

And finally, there are synergies at the Group level. One of Satyam’s major area of expertise, is engineering. The possibility for the Mahindra Group to leverage this is phenomenal. So again there is a straight fit.

In your view, how long would it take for Tech Mahindra to put Satyam back on the growth track?

I would hate to set them a deadline. But certainly in the next few months they should be able to stabilise it and get things going. Tech Mahindra needs to understand Satyam and its expertise; having done that, I do not think it will take them long to get the company going positively in terms of cash flow and additional business.

What about the employees of Satyam. Does Tech Mahindra have the flexibility to rationalise the headcount of Satyam, especially considering its large bench?

There is a large bench, partly because the revenues were inflated. Besides, Satyam has lost some business in last 3-4 months. First, Tech Mahindra will have to see what it can do. It can start looking for new business. Second, it has to look at what it can do to optimise the manpower. For instance, can the excess resources be deployed in some other areas? Third, it has to work out some ways where people can go.

It is purely Tech Mahindra’s prerogative. I would only say there is a great deal of expertise in Satyam. Even professionals who are on the bench have undergone a good training programme. It is a good group of trained professionals and it will be great if Tech Mahindra can find ways of utilising them for new business by deploying them elsewhere. But yes, the bench strength is large, although I cannot divulge the exact numbers.

You have been talking to various customers of Satyam. What has been their first reaction post the stake sale?

Well, customers are happy on two or three counts. They are happy that the process has gone through smoothly, and quickly. Also look at the standing of the Mahindra Group…Some clients of Satyam may have interacted with the Group or heard of them, they are happy now that a Group like the Mahindras have come in with their great track-record.

So customers have comfort in the financial strength and governance of the Group, and they are now looking forward to working with them. Just one or two customers have said they are happy but still need to go back to their own boards, because they are automobile companies.

What is your message to global investors now that the sale has been neatly wrapped-up?

India has its problems but we are capable of handling it. Whether it is the terrorist attacks or 20-inches of rainfall, the Indian IT industry has shown that work goes on. This was, of course, a different case. This was a man-made disaster…It was from within the company. The message from me to investors is that India is not just a good destination for investment, but among the best in the world.

You hope that a corporate fraud never happens, but if it does, the Indian capability in handling the situation is far better than anywhere else. The last few weeks have certainly been challenging, but also in a way an important assignment for me. There were 50,000 jobs at stake. There is a global interest in this now.

Why did Satyam decide to delist from Euronext Amsterdam?

Because they would need to go through many legal requirements for the public offer and there is a time period involved. They want us to stay on, though.

Related Stories:
Satyam: Unfinished work
Karnik sees no merit in ICAI poser on Satyam stake sale timing
Tech Mahindra bags Satyam, top bidder at Rs 58 a share

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