Satyam drops deal for builders

Satyam Computer Services Ltd bowed to investor pressure and canceled its plan to buy two builders partially owned by its top executive for $1.6 billion after seeing its stock get slammed.

India's No. 4 software services company said it decided to not go ahead with its proposed acquisition of Maytas Properties and Maytas Infra "in light of the feedback received from the investor community."

"We have been surprised by the market reaction to this decision even though we were quite positive about the merits of the acquisition," Satyam Chairman B. Ramalinga Raju said in a statement. "However, in deference to the views expressed by many investors, we have decided to call off these acquisitions."

Satyam's shares, which closed down $6.85, or 55 percent, at $5.70 on the New York Stock Exchange, jumped 50 percent in after-hours trading.

Earlier on Tuesday the company said it planned to enter India's depressed construction industry by buying all of privately held Maytas Properties for $1.3 billion and 51 percent of builder Maytas Infra for $300 million.

Ramalinga Raju and other insiders hold 36 percent in Maytas Infra and 35 percent in Maytas Properties.

The two are builders that work on infrastructure projects including highways, ports and water treatment systems. Satyam helps develop software for other businesses.

Satyam's clients include General Electric, Nestle, Qantas Airways and Fujitsu Services.

While announcing the deal, Ramalinga Raju had said the move would "de-risk the core business," making his company stronger.

"The two acquisitions pave the way for accelerated growth in additional geographies and market segments," he said.

But analysts had said the acquisitions made little sense at a time when technology outsourcing companies are preserving cash to cope with slowing sales and questioned the motives of Satyam's top executives.

"This is outrageous and very frustrating," said Jefferies & Co analyst Sachin Jain. "This clearly raises questions about what kind of corporate governance you have in other Indian companies. That could hurt foreign investment."

JP Morgan had cut its recommendation on the stock to "underweight" from "overweight" and slashed its price target to 175 rupees ($3.68) from 475 rupees. Janney Montgomery Scott cut its recommendation to "neutral" from "buy," while S&P Equity Research reduced its rating to "hold" from "buy."

"We see this as a serious corporate governance issue and believe investors should avoid the stock," JP Morgan said in a note to clients.

via Reuters