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L&T Management’s role in Satyam Computers

January 27, 2009

L&T recently reported having hiked its stake in Satyam Computers by 8%, taking its total stake to 12.3% and investment to US$137M. AM Naik, Chairman and YM Deosthalee, CFO addressed analysts this morning.

The original 4% stake acquired in Satyam was with a strategic viewpoint; L&T apologised for the earlier impression that it was a portfolio investment. The initial purchases were made without the knowledge of fraud at Satyam. The intention of hiking the stake to 12.34% included – strengthening its position as a strategic investor, where L&T would have a clear say in Satyam’s decisions, and bringing down the average cost of acquisition to Rs80.

L&T asserted that Services, including technology and financial, are core areas and strengthening these is a priority. L&T Infotech could see value erosion if it remains a mid-tier IT company with US$400M revenue. In the long-run, management wants to see services contribute 15% of the total business.

L&T Mgt appeared very positive on the role of the current Board as well as role of the govt in saving Satyam. Mgt claimed that it is receiving active encouragement and support from government – including the PM and Home Minister, on its role in Satyam.

Management has asserted that liabilities if any would not spillover to L&T and its worst case loss would be restricted to the value of investment in Satyam. L&T mgt felt that ongoing claims (class-action suits, U-paid claims) are not very strong. Finally, Mgt said they were ‘evaluating’ the future course, including hiking the stake to 15% and making an open offer in due course.

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