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What UTI research cell recommended

Findings of the Equity Research Cell sent to investment department on June 30, 2000:

The company does not seem to have a strategy in place in terms of vertical and horizontal focus.

The company does not have a global marketing set-up in place.

The company is not an employer of choice nor is it likely to be one in the foreseeable future.

The company is acquiring, what is essentially, a body-shopping outfit with low net profit margin levels of 10 per cent. The acquired company does give it low-end entry into some US clients, but does not bring a substantive marketing set-up or experience in project development...

...The companies it is targeting to acquire do not seem to be of very high calibre. Hence, it is very difficult to present a convincing case for success of the merged entity in building sustainable and competitive software services company.

The offer is at a valuation of 100xFY 00 (June ending) earnings _ the existing operations of the company do not deserve these valuations. The FY01 earnings are being projected to be very optimistic, essentially based on takeover of companies in the US. H owever, there is a possibility that `the acquisition may not happen at all' and in that case fundamentals of `the company may not be able to support a price even half of the offer price'. Besides the acquisitions are not risk-free as there are significa nt integration risks involved in merging an Indian entity with an American entity.

`Hence it is very difficult to make a positive call on the sustainability of the merged entity. However, given the current track record of the acquiring company and the potential targets, we are inclined to think otherwise on success of integration and s ustainability.'

What the Chairman and EDs did

THE private placement offer was rejected by Executive Directors on July 14, 2000. Rejection approved by Chairman on July 17, 2000.

File revived by Ms Prema Madhu Prasad, General Manager, UTI, on July 21, 2000 recommending the sale of existing 2.42 lakh shares of UTI in Cyberspace and subscribing to 3.45 lakh shares at Rs 930 per share in private placement. Approved by Executive Dire ctors, S.K. Basu, M.M. Kapur and then Chairman, P.S. Subramanyam, on the same date.

UTI paid Rs 32.08 crore to Cyberspace Infosys Ltd on July 27, 2000, even before disposing of the 2.42 lakh shares held.

On 27, July 2000, Cyberspace Ltd opened an account with Punjab & Sind Bank, Fort, Mumbai, where the Rs 32.08 crore was deposited. The amount was then allegedly diverted by Directors of the company ``through various front companies with a view to hike the prices...,'' the FIR said.

Immediately after UTI issuing the cheque, share prices of Cyberspace Infosys Ltd on Bombay Stock Exchange begun plummeting ``indicating that the share prices prior to private placement were artificially rigged up.''