Bankruptcy Is Good for Satyam

Some people were infuriated that I was suggesting a Satyam (SAY) bankruptcy a few days ago and had no concern for its 50K employees. A bankruptcy is different from liquidation - bankruptcy helps the assets of the firm operate under a new capital structure. It is one of the best ways to ensure that assets and employee jobs of an old firm survive. Look at Lehman (LEHMQ.PK) - most of its employees are even employed by Nomura (NMR) and Barclays (BCS) today.

Now that Larsen & Toubro [L&T] and many others are looking forward to acquiring the company (without having a reasonable handle on its balance sheet or legal liabilities), a Satyam bankruptcy might not be required. I think L&T is making a wrong decision, but it is a good decision for me. If everybody were to sit at home and not buy or sell stuff, the economy would collapse even more. I like animal spirits in other people - I just don't want animal spirits in me at this time.

Did I miss buying Satyam that day (was it Jan 9?) when it fell under Rs 10? Considering that the stock is now around Rs 50, that assessment would seem to be correct. One of my friends was pretty sure that the stock hits Rs 50 as buyers emerge. But then, there have been too many of Fannie, Freddie, Lehman, AIG etc in the last year - stocks that go down because of bankruptcy fears and then actually go down all the way to 0. I am not really unhappy that I didn't 4x in Satyam.

Disclosure: None

Comments

[Hamilton:]

The businesses you name lost a lot of money. Satyam had a bunch of money stolen from it, and they know who did it. That's a big difference. I don't see how anyone could take your comparison seriously.

Feb 03 11:03 AM

[dc1:]

Who is this clown, writing this post. What does animal spirits have to do with Satyam and the fraud fostered on it, it's employees and stock holders?

Feb 03 12:19 PM

[gjg49:]

other than potential legal liabilities, they don't owe much to anyone. they had no debt and easily manageable current liabilities. the lawyers will want to get paid, so they will almost certainly bring lawsuits within the range of the company's ability to pay. bankruptcy occurs when an entity cannot pay their debt. satyam doesn't seem even remotely close to bankruptcy unless the cash level is actually zero rather than what raju said a month or so ago.

Feb 03 01:44 PM

[Ronbapa:]

I totally agree with you. Bankruptcy is the only way to salvage satyam's employees and clients. First file for bankruptcy, and sell off the individual units like BPO, Software development etc as different entities and payoff the bondholders and stockholders. Complete (intoto) acquisition by L&T or any other firm is suicidal. I would short that companys stock,Just the legal liabilities all over the world is enough to bring down any fortune 50 firms.

Feb 04 12:07 PM

[Vidhi:]

I donot think that bankruptcy is a good option coz although the founder has done a maor fraud, their clients/customers are very happy with their services which proves they provide a good quality service! hence they should be taken over by a well reputed company...to keep clients, employees, shareholders n in the bargain the "the Government" happy!

Feb 05 12:28 AM

[GG:]

I wasn't expecting someone would want to buy this without figuring out a way to separate the legal liabilities, which can potentially be large. That's why I suggested a mechanism that will entice new investors to buy this company. Obviously that's not the case now.

Feb 07 02:08 AM