Is Satyam Saved?

Indian outsourcing firm Satyam (SAY), which is reeling from accounting fraud, said Thursday that it has named an insider as the new CEO and lined up $130 million in financing to keep operations running.

In a statement, Satyam said A.S. Murty will become the new CEO. Murty has been with Satyam for 15 years and most recently headed the company’s leadership development group. Murty also led Satyam’s delivery group so will at least be well versed in customer service. Satyam board member Deepak Pareck said it was clear that the new CEO had to come from within.

Last month, Satyam revealed massive financial fraud and has been reeling ever since. The company’s biggest two missions are stabilizing the business and convincing customers to stick.

While Murty knows Satyam’s operations well it’s unclear how the appointment will be received. Satyam (all resources) also appointed two outsiders as “special advisors.” The company appointed Homi Khusrokhan, the former Managing Director of Tata Chemicals, and Partho Datta, the former Finance Director of the Murugappa Group, to offer expertise as the company tries to recover. Both will work for free. Datta’s big task will be sorting out Satyam’s books in what the company calls “completing the complex financial restatement exercise.”

Perhaps more importantly, Satyam secured about $130 million in financing for working capital. Satyam said:

The loan, along with healthy collections, will help the company manage several short-term financial challenges. Satyam also reaffirmed that January salaries (globally) and mid-February salaries (US-based associates) have been met from internal accruals. (US-based associates are paid every two weeks.)

For now, Satyam has stabilized the company enough to give it a shot. It remains to be seen if Murty can prevent customers from leaving.

Comments

[Jake Berzon:]

I don't see how putting another extended family member in charge can possibly restore confidence. With so many crooks coming to light in the past year, trust is getting dangerously scarce. Once you loose it - investors and customers are very likely to look elsewhere.

Feb 05 11:03 AM

[Norwell:]

Well the stock has not taken any kind of positive spin on the news. I know the expected suitor is now sitting on the sidelines, but you would think a new CEO and financing would help the stock.

Feb 05 11:36 AM

[VBS:]

The CEO appointment does not matter - I believe no one individual can make a difference - what is critical is that most clients will stay on so long as the Raju family shadow is gone. On a pure EBITDA basis, this share is worth $ 6-7, almost the pre-Dec 16 ill-fated announcement - and this circles back to the current valuation which factors ADR lawsuits - in short the ADR holders are digging a hole themselves - no lawsuits, valuation goes up and that announcement would make suitors with deep pockets bid aggresively and push the stock up further - half the current prospective buyers are vultures who have otherwise built mediocre IT Services businesses.

Satyam is still a strong buy - and any financial forensic detective would bet that the missing $1 Billion is conveniently parked in immoveable real estate that, if traced so, would only appreciate in the coming months.

Surprised this stock is where it is - should be trading much higher.

Feb 05 02:58 PM

[mikeylikesit41:]

VBS,

Strong argument. I like it.

I would add that the stock is going slightly lower because the vulture speculators were looking for a quick hit profit from a sale of the company to a vulture company like L&T.

Also , the instutitions cannot buy more right now until the earnings are restated. Their bosses would have their arses if they put any real big money in this now. Sure, Fidelity and a few others have been buying but only with minor speculative money.

Wait til the earnings report back up your EBITDA guesstimate and we will see $6 to $7 easy.

Feb 06 06:58 AM

[Maxi:]

Satyam will be saved all fraud companies find their way out.

Feb 07 11:32 PM