Nightmare at Satyam

From Ajay Shah's  blog ---> Nightmare at Satyam

Sweet Memories: Rajesh's Birthday Dinner @ The Avenue

Satyam Computer board needs a lesson or two in Corporate Finance and Corporate Governance

Last Saturday, we made a presentation on '10 Ways to Create Shareholder Value' based on an HBR study. One of the principles explained in the presentation ties very well to the Satyam Computer fiasco.

On Tuesday, Satyam announced its decision to pick up 51% in Maytas Infrastructure and 100% in Maytas Properties. However, as soon as the USD 1.6-billion deal was announced, it met with stiff market resistance. Investors were angry on the company’s acquisition of the infrastructure company — especially when the realty business is highly cash-consuming now. The Satyam ADR fell by as much as 55% on news of the acquisition.

Some newspaper called this Ulta-Pulta deal, because when you spell SATYAM in reverse order (ulta), it become MAYTAS (Maytas Infra and Maytas Properties are companies owned by Satyam Chairman's sons!).

The corporate finance lesson that the board of Satyam Computer need to learn is:

Principle: "Return cash to shareholders when there are no credible value-creating opportunities to invest in the business"

Satyam today finds itself in this situation - excess cash, undervalued shares, but limited opportunities of growth in IT business. As per this principle, Satyam could return the money to shareholders through dividends and share buybacks.

Advantages:

• It gives shareholders a chance to earn better returns elsewhere, rather than Satyam investing them in the companies owned by Satyam Chairman's sons.
• Reduces the risk that management will use the excess cash to make value-destroying investments–in particular, ill-advised, overpriced acquisitions. (This is exactly what they attempted to do yesterday - Value destroying investment)

Well, investors finally had the last word - they forced management to drop the deal. I saw one of the biggest institutional investors of Satyam on TV questioning the deal and asking why the company is not buying back the shares.

So, how should Satyam use the cash? Buy-back shares or give dividend? The thumb rule is simple:

• Repurchase shares only when the company’s stock is trading below management’s best estimate of value and no better return is available from investing in the business.
• Pay dividend when the shares are expensive and there’s no good long-term value to expected from investing in the business

In Saytam's case, the first point is true. So, the company should buy-back shares and refrain from such ulta-pulta deals!!!

It brings another point. Was it just about financing or also about Corporate Governance?

This episode raises serious questions about Satyam's corporate governance. Now, you know value of TATA group - they are a class apart when it comes to corporate governance. Mr. Ratan Tata, you may want to start a management education program on Corporate Governance. Otherwise, "these bozos" will never understand it...

Keep Rocking!

It's Rock On season! While Rock On (movie) fever is still on, our 'band of boys and gals' has also been rocking throughout the semester III of MPE.

Yesterday was last day of semester. The most exciting and learning experience in business school is working on projects and making group presentations. We presented on many interesting topics this semester:

(Subject / Presentation)

• Brand Management: 1. Positioning of Sprite 2. Hyundai i10 Product Launch in India
• Business Sustainability: Sustainable Asset Management (SAM)
• Corporate Finance: 10 Ways to Create Shareholder Value
• Macro Economics and Global Economy: Hyperinflation Crisis in Zimbabwe
• Operations Management: Application of Lean and Agile Principles in Software Development
• Strategic Marketing Management: Marketing Models of Consumer Behavior

We ended the semester on a high with an interactive presentation of Hyundai i10 Product Launch in India. Nitin came up with this idea of doing a role-play of business news channel covering Hyundai i10 Launch event. The entire team worked on preparing slides, thinking through the screen-play, assigning roles and setting up IBC News - Indian Broadcasting Corporation. In studio, we had Lakshmi as News Reader and Rajesh as Auto Industry Expert (Analyst); at the launch site, we had Nitin as IBC reporter, Anand as Marketing head of Hyundai Motors and Prachi as independent car reviewer. Anshu did a great job of shooting the entire event on Video Camera. It was real fun!

If topics were interesting and presentations were fun, the feedback from professors was immensely encouraging [except for one subject where expectations got to be modest:-)]. Some of them are quoted here...

• Positioning of Sprite: "Superb presentation... the best presentation of class...!"
• Hyundai i10 Product Launch in India: "The delivery was superb... everyone contributed... I'll give them full marks...!"
• Sustainable Asset Management: "Excellent presentation... The topic was very well brought out...!"
• 10 Ways to Create Shareholder Value: "Very good presentation...!"
• Hyperinflation Crisis in Zimbabwe: "Excellent presentation...!"
• Application of Lean and Agile Principles in Software Development: "It was enlightening presentation... very new concept... excellent presentation... it was learning experience for me as well... the time spent on listening to this presentation was worth it... very well done!"
  
  It gives us sense of satisfaction! What has been even more satisfying is the kind of support, motivation and appreciation that we have received from our class-mates.
  
  An SMS read, "Rajesh, I know im repeating but you guys totally rocked today.. Im sure u guys wud have put in a lot of efforts... Trust me it was all worth it."
  
  Thank you very much! Your appreciation means a lot to us!
  
  I must thank my entire team for running that extra mile every time to give our best! Lets keep rocking!!!
  

Are you intelligent?

Here is a very simple test to measure your intelligence... Submit your answers as comment to this blog and I'll send you your score!

1. How many birthdays does the average man have?
2. Some months have 31 days, how many have 28?
3. How many outs are there in an inning?
4. Is it legal for a man in California to marry his widow's sister?
5. Divide 30 by 1/2 and add 10. What is the answer?
6. If there are 3 apples and you take away 2, how many do you have?
7. A doctor gives you three pills telling you to take one every half hour. How many minutes would the pills last?
8. A farmer has 17 sheep, and all but 9 die. How many are left?
9. How many animals of each sex did Moses take on the ark?
10. A clerk in the butcher shop is 5'10" tall. What does he weigh?
11. How many two cent stamps are there in a dozen?
12. You are participating in a race. You overtake the second person. What position are you in?
13. If you overtake the last person, then you are...?
14. Note: This must be done in your head only. Do NOT use paper and pencil or a calculator. Try it: Take 1000 and add 40 to it. Now add another 1000. Now add 30. Add another 1000. Now add 20. Now add another 1000. Now add 10. What is the total?
15. Mary's father has five daughters: Nana, Nene, Nini, Nono. What is the name of the fifth daughter?






Don't be shy... Take the challenge and prove your intelligence.