As said in one of our earlier posts, Saytam Computer Services’ actual business was untouched and probably even more valuable than imagined without all the extra costs added on by Raju.
Now this has been proven with the bidding war that has started over it. BK Modi’s Spice Group made an offer to inject $408 million into the company and Spice’s stock jumped 81% today. Yes, that’s right - 81%. The Spice offer is well structured (if a little low). It is a preferential issue of new shares rather than a buyout of old ones. This means that the money will go into the company rather than to existing shareholders. Spice will acquire 51% of Satyam’s shares and with it, control.
The other major bidder is Larsen & Toubro’s IT divison L&T Infotech. They already own 12% of the company.
This is very good news for Satyam, the Indian markets and especially for the buyers, whether L&T or Spice. As we’ve been saying - a bidder with a good plan, a good offer and some appetite for risk can make an absolute killing on this stock and it looks like that’s exactly what’s going to happen. Spice’s offer seems a little low and will probably be raised but even at a slightly higher value, Satyam is a very good bet. It still has $2bn in revenues and a probable 30 - 35% margin can be squeezed out.
This deal is very reminiscent of a Warren Buffet style low-or-no downside and HUGE upside for a slightly less than fair price. Can BK Modi pull a Buffett?
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