IBM pulls out of race for Satyam on lawsuit fears

Global information technology giant IBM is understood to have finally pulled out of the race for Satyam Computer Services on fears that it could face a spate of class action suits in the US, where it is listed.

IBM entered the bidding process last month through a law firm, which is a common practice in the West, but neither denied nor confirmed its interest in acquiring Satyam. Satyam currently faces 13 class action suits by holders of the company’s American Depository Receipts in the US, after Satyam founder Ramalinga Raju confessed to a large-scale accounting fraud on January 7. Upaid, a mobile payment specialist, has also filed a suit claiming damages of $1 billion.

An investment banker close to the deal said IBM was a big name and could, therefore, be vulnerable to more lawsuits.

IBM’s exit leaves the field open for engineering giant Larsen & Toubro, which owns 12 per cent in Satyam, Tech Mahindra, Cognizant Technology and private equity firm Wilbur L Ross.

Meanwhile, Satyam’s government-appointed board has extended the deadline for submitting the technical and financial bids to April 13, from April 9, after L&T and Tech Mahindra had sought additional information to enable them to prepare the bids.

IBM is understood to have conducted due diligence on some of Satyam’s major customers and was considered a good fit for the Indian company, principally because of its brand-name and overlap in service offerings.

Satyam’s low-cost structure, it was said, could have given IBM the leverage to take on Indian IT service providers.

In its annual report filed with the New York Stock Exchange in February 2009, IBM had named Satyam, along with Infosys and Wipro, as its main competitors.

At Satyam’s board meeting on December 16, Ramalinga Raju had cited a hostile takeover bid by IBM as a reason for proposing that Rs 8,000 crore of cash be transferred to promoter-owned companies Maytas Properties and Maytas Infrastructure. It was strong shareholder opposition to these deals that precipitated Satyam’s crisis.

IBM joins three other bidders that pulled out of the race. One was Phaneesh Murthy-promoted iGate, which participated in the first round of bidding, but backed out from completing the second round. Earlier, the Hindujas group had decided to opt out. The B K Modi-owned Spice group, which completed the second round of bidding, also withdrew for “lack of transparency”.

The Spice group now maintains it could re-enter the bidding if its conditions for an “open auction and transparent process” are met. It has written another letter to S P Bharucha, former Chief Justice of India who is currently monitoring the bidding process, seeking an open auction instead of tenders through sealed covers, besides requesting that the identities of all the shortlisted bidders be revealed.

The Satyam stock rose 13.6 per cent on the Bombay Stock Exchange, to close at Rs 45.15.