Satyam Up on Merger Talks, Despite Denials

BANGALORE/MUMBAI (Reuters) – Shares in Satyam Computer Services (SATY.BO) rose more than 7 percent on Tuesday following a newspaper report one of its smaller rivals had approached the embattled Indian outsourcer for an all-share merger.

Tech Mahindra (TEML.BO), a unit of tractor and utility vehicle maker Mahindra & Mahindra (MAHM.BO), is looking for a deal that could involve gaining control of a combined entity, the Economic Times said, citing an unnamed person with knowledge of the development. [ID:nBOM366195] The report sent Tech Mahindra shares up as much as 14.6 percent despite officials from both companies denying the report.

The vice chairman and managing director of Tech Mahindra said the company had not approached Satyam or its merchant bankers with a merger proposal.

“It is pure fiction at this point in time,” Vineet Nayyar told Reuters.

In a brief statement, Satyam said there was no truth to the report.

Another official at Tech Mahindra, which is 44.2 percent owned by Mahindra & Mahindra and 31 percent by Britain’s BT Group Plc (BT.L), said the newspaper report was speculative.

“Anything before Satyam’s board meeting, or the board gets constituted, is so speculative that I just think we are getting ahead of ourselves,” said C.P. Gurnani, head of Tech Mahindra’s international operations.

Satyam’s board is scheduled to meet on Saturday to consider options, including a share buyback.

Shares in Satyam, which has a market value of $2.3 billion, were up 7.5 percent by 0943 GMT, outperforming a 0.5 percent gain on the Mumbai market .BSESN. Tech Mahindra was up 4 percent.

Satyam stock slumped to a 5-year low late last month after it was barred from World Bank business, but has since rebounded by almost a third on speculation it could be a takeover target.


Satyam has hired the local unit of Merrill Lynch to look at how to boost shareholder value and rebuild investor confidence after a botched attempt in mid-December to buy two construction firms in which Satyam’s founders held stakes.

The outsourcer said on Friday the holding of its founders, led by Chairman B. Ramalinga Raju, had fallen by a third to just 5.13 percent, increasing speculation of a possible takeover or merger.

Private equity players would probably be more interested in buying a stake in Satyam than its competitors, analysts at JP Morgan wrote in a research report on Tuesday.

“We believe that multinational technology players or competitors are unlikely to buy into Satyam given significant overlap of operations and difficulty of integration,” they wrote.

It said if smaller Indian rivals such as Tech Mahindra or HCL Technologies (HCLT.BO) were to strike a deal with Satyam, it would have to involve “some stock swap element” since both the companies have low net cash holdings.

“HCL Technologies is the only likely suitor in our view given aggressive management,” JP Morgan said.

Local media had reported that Satyam held talks with HCL Technologies, a software services firm that recently bought British consultancy Axon after outbidding its bigger rival Infosys Technologies (INFY.BO).

A spokesman for HCL, based in New Delhi, has said the reports were speculative.

By Sumeet Chatterjee and Janaki Krishnan
(Editing by Ranjit Gangadharan and Lincoln Feast)