While I was out of circulation and not blogging (business trip and vacation) the Satyam saga was unfolding. I remained abreast of what was happening but didn’t post anything on it. It’s been well covered by other bloggers and the media in general both in India and abroad. So I won’t bother adding my opinion except to say that if India Inc. is to redeem itself, what happens from here on out is what matters. The Rajus, on the other hand, cannot redeem themselves. Nor can the independent directors, unless they publicly say that critical information was withheld from them.
But I have several questions about the whole affair. Some of them are rhetorical, others are real questions. So if you know the answers or where I can read up on material, please let me know.
I understand that so far, nothing illegal has been done insofar as the the announcement of the acquisition (now withdrawn) is concerned. The size of the deal was within (exactly) the limit prescribed by the Companies Act beyond which shareholder approval is required [uTVi]. That insiders had pledged their shares without public disclosure is also not prohibited apparently [Jayanth Varma]. So does that mean this is now business as usual for Satyam and the Rajus?
Who were the bankers for Satyam? They must have gotten a top investment bank to advise them on this. And according to Raju they had a Big 4 accounting firm in the mix as well.
Rajus’ share of the company is now down to about 5%. Even if it was 8%, that is just too low to retain control of the company in a fair fight with shareholders. The question that I am not able to get an answer to is – how do shareholders assert themselves now? In the US, I understand how it goes. A private equity firm or someone like Carl Icahn will acquire the minimum stake in the company to put up a slate of directors and force a shareholder vote. Typically management will not go through the process unless they have a hope of retaining control. There are poison pills and different classes of shares and other stuff that complicate this process, but roughly that is how it works. I can’t remember a case where something like this might have happened in India. Proxy fights in India are typically between one industrialist and his brother, not with shareholders at large.
Even if nothing illegal was done so far, can the shareholders sue the board for gross negligence? After all, they have lost 40% of the value of their shares because their actions. That’s a lot of money.
Should the independent directors have resigned or should they have stuck around and fixed things? Now the Rajus have untrammeled control over the board and the company. But I guess they (the directors) need to look out for themselves first.
Has any government official or SEBI official issued any statement on this matter so far? I guess they think that nothing illegal has happened so far, so why should they. But make no mistake. Investors outside the US are watching this very, very closely. It’ll be bad if the Rajus get away with this. It will be far worse if the concerned authorities do not do a mea culpa on this and then quickly act to strengthen shareholder rights. Think about this, when your stock market is 60% down from its peaks and every institutional investor is looking at emerging market risk in a different light, who will want to invest in a country where the management of a company can hollow out the company and enrich themselves at the expense of the shareholders and they can do nothing but wring their hands.