India OKs Tech Mahindra-Satyam Deal - InformationWeek

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IT Leadership // IT Strategy

India OKs Tech Mahindra-Satyam Deal

Authorities give node to $422 million rescue attempt of troubled outsourcer.

Referring to Satyam as "a weeping orphan," India's top corporate regulator on Thursday approved Tech Mahindra's proposed $422 million acquisition of the scandal-scarred outsourcer.

"Apparently a healthy and smiling company, having won various laurels -- mostly in relation to corporate governance -- became a weeping orphan overnight," wrote S. Balasubramanian, chairman of India's Company Law Board, in a statement.

"Having convinced myself that the Board of Directors has selected a technically and financially competent/qualified strategic investor ... to adopt and nurture the ailing Satyam, I accept the recommendation" that Tech Mahindra assume control of Satyam, Balasubramanian wrote.

Tech Mahindra must now deposit into escrow $351 million by Tuesday to secure the agreement, or Satyam's overseers will move on to the second-highest bidder. The company is backed by Indian manufacturing giant Mahindra & Mahindra and British Telecom, so raising the cash shouldn't be problem.

Closing the deal is just the start of the challenges facing Tech Mahindra as it seeks to remove the stench of a multibillion-dollar accounting scandal that saw Satyam's founder and chairman, along with several senior executives, arrested and jailed for fraud.

Indian authorities earlier this month formally charged Ramalinga Raju and several alleged accomplices with crimes including criminal conspiracy, impersonation, forgery, falsification of records, and evidence tampering. Raju has admitted falsifying Satyam'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.

Tech Mahindra's biggest problem: Its status as a relative unknown outside the telecom industry could make it difficult to convince Satyam customers from other fields, such as manufacturing, health care, and financial services, to stay on.

"To win and retain large customers is going to be difficult for them," says Atul Vashistha, CEO of outsourcing consultancy NeoIT and former head of international operations for Cardinal Health.

Last month, the United Nations said it planned to terminate its contracts with Satyam and bar the outsourcer from bidding on future work. Another Satyam customer eyeing alternatives is property and casualty insurer Selective Insurance. Selective has outsourced about a quarter of its IT staffing requirements to Satyam. Gadget maker SanDisk has also said it's considering pulling work from Satyam.

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

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