iGate May Bid For Satyam

Rival outsourcer wants updated financial records before proceeding with offer.

Paul McDougall, Editor At Large, InformationWeek

March 16, 2009

3 Min Read

Outsourcer iGate said in a regulatory filing it may bid for troubled rival Satyam.

The Pittsburgh company, however, said it would not move forward with the plan unless it receives up-to-date financial records from Satyam.

"iGate is now expecting to receive from Satyam Computer Services the latest financial statements, including those for the quarter ended December 2008 and the months of January and February 2009," iGate said in a document filed last week with the Securities and Exchange Commission.

Shares of iGate were down 4.04%, to $2.85, in early-afternoon trading Monday.

On Jan. 7, Satyam chairman Ramalinga Raju admitted falsifying the company's cash position by as much as $1 billion while overstating quarterly earnings and revenue by up to 28%. Satyam may also have faked employee numbers and other data. Raju tendered his resignation and has since been arrested and jailed. He's now in the custody of India's version of the U.S. Federal Bureau of Investigation.

Other Satyam officers, and two employees of PricewaterhouseCoopers India, also have been detained in connection with the case.

Increasingly nervous Satyam customers are looking for alternatives in case the scandal-scarred outsourcer is unable to restore internal stability or find a buyer with pockets deep enough to see the Indian company through its current crisis.

The latest Satyam customer to eye alternatives is Selective Insurance Co., the 47th largest property and casualty insurance company in the United States. Selective has outsourced about a quarter of its IT staffing requirements to Satyam, but it may be looking for other arrangements in light of Satyam's woes.

"We believe we would be able to manage an efficient transition to a new vendor and not experience a significant negative impact to our operations in the event that we no longer retain Satyam in their current capacity due to the financial issues they are currently experiencing," Selective said in papers filed Feb. 27 with the SEC.

Selective Insurance is but the latest in a growing list of Satyam customers that may head for the exit. Gadget maker SanDisk recently warned investors that Satyam's troubles have put its business operations at risk.

SanDisk outsourced a number of critical IT projects to Satyam, including the build-out of a company-wide ERP system. Some of those projects are in trouble. "Our current system integrator, Satyam Computer Services Ltd., is experiencing financial difficulty which has resulted in some project delays and loss of productivity," SanDisk stated in an SEC filing.

India's Economic Times has reported that U.S. heavy equipment manufacturer Caterpillar may terminate its deal with Satyam. Insurer State Farm has said it would seek an end to its outsourcing contract with the company.

Satyam earlier this month began taking bids in an effort to secure new ownership in the hope of distancing itself from the scandal. After receiving regulatory permission to launch the auction, Satyam's board is looking for an investor that will take a 51% majority stake in the firm.

Some interested parties have already emerged. Indian construction and engineering company Larsen & Toubro has informed Satyam's board of its intention to bid, an L&T spokesman told The Times Of India. Other reports suggest that IBM may be interested in tendering an offer, given its already strong presence in India. IBM typically does not comment on such speculation.

Adding to its problems, Satyam is now facing lawsuits from shareholders who claim they were misled about the company's financial situation.

InformationWeek talked with Indian outsourcing company execs as they deal with fallout from the Satyam financial fiasco. Download the report here (registration required).

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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