Key Facts:

 Satyam Computer Services Ltd. is a consulting and information technology services company
based in Hyderabad, India .

 It was found in 1987 by B.Ramalinga Raju.

 The company offers information technology (IT) services spanning various sectors, and is listed
on the New York Stock Exchange and Euronext

 It is considered as an icon among the IT companies and at one point had over a billion dollar
revenue.

 Satyam's network covers 67 countries across six continents.

 The company employs 40,000 IT professionals across development centers in India, the United
States, the United Kingdom, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt
and Australia.

 It serves over 654 global companies, 185 of which are Fortune 500 corporations.

 Satyam has strategic technology and marketing alliances with over 50 companies.

 Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune,
Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam.
Satyam Maytas Fiasco
 Satyam Computers had on  December 16, 2008,  announced that it will acquire two group firms -
Maytas properties and Maytas Infra.

 The BOD of Satyam had approved the founder’s proposal to buy 51 per cent stake in Maytas
Infrastructure and 100 % in Maytas Properties.
 The total outflow for both the acquisitions was expected to be US$ 1.6 bn comprising of US$ 1.3
bn for the 100% stake in Maytas Properties and US$ 0.3 bn for the 51% stake in Maytas Infra.
 This is the move that sparked a row over alleged violation of corporate governance laws.
 This deal is not profitable for investors .So after this announcement they started to raise their
voices against the deal

Maytas Infra
 The company is run by the sons of Ramalinga Raju

 It was started in the late 1980’s by Ramalinga Raju

 The main reason for the debacle of Maytas Infra is due to the debacle of Satyam.

 One of the reasons for the debacle of Maytas properties is the ongoing economic slowdown

 The company has huge land banks and the prices have dropped down in the real estate
significantly
Satyam’s justification for Maytas buyout
deal
 de-risk the core business

 the integrated organization would be stronger and more diversified to deal with the uncertainty
of the market.

 feeling that in the recent times it is difficult to make a strategic deal with other IT companies.

Reaction of Investors after the

announcement of accusation of Maytas
 Investment giant Templeton and brokerage house CLSA opposed to this decision.

 It results that part of investors succeeded to thwart an attempt by the minority-shareholding

promoters to use the firm’s cash reserves to buy out two companies owned by them — Maytas
Properties and Maytas Infra.

 That aborted attempt at expansion precipitated a collapse in the price of the company’s stock
and a shocking confession of financial manipulation and fraud from its chairman, B. Ramalinga
Raju
WHY Ramlingam Raju Failed??
• The promoters decided to inflate the revenue and profit figures of Satyam. In the event, the
company had a huge hole in its balance sheet, consisting of non-existent assets and cash
reserves that have been recorded and liabilities that are unrecorded.

• So to fill up this gap……..

Company announced Acquisition of 51% stake in Maytas Infra and 100% stake in Maytas
Properties on 16th Dec 2008 but were unsuccessful.

• He tried to fill the gap b/w actual profits of the company and the profits that were shown in
records, balance sheets etc. and also tried to cope up the situation till last minute . But now the
situation were beyond his hands and therefore he confessed the frauds(on Jan 7, 2009) made
by him by showing inflated profits in the balance sheet

• According to the‘confessional’ statement of Mr. Raju, the balance sheet shortfall was more than
Rs.7000 crore.

• The following statement he made in his confession letter – “Every attempt to eliminate the
(balance sheet) gap failed.
WHAT WENT WRONG?
• Simple manipulation of revenues and earnings To show superior performance.Raising fictitious
bills for services that were never rendered.

• To increase the Cash & bank balance correspondingly.

• Operating profits were artificially boosted from the actual Rs 61 crore to Rs 649 crore.

Its financial statements for years were totally false, cooked up and...

 Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for several years.

 Its liability was understated by $ 1.23 Billions

 The Debtors were overstated by 400 millions plus.

 The interest accrued and receivable by 376 Millions never existed

 ARTIFICIALLY ADDED 588
OPERATING PROFIT ADDED 588
INCREASING THE CASH RESERVE
ONLY FOR Q2 ALONE TO 588
GROWTH IN THE OPERATING PROFIT
Satyam scam: So who is to blame?
 Who is guilty in this sordid state of events?

 Raju is by far the father of this fraud.

 But there were others who are also culpable.

 Satyam's auditors:
 So what were the auditing company,Pricewater houseCoopers, doing?

 PwC has written a letter to the BOD of Satyam that its audit may be rendered "inaccurate and
unreliable" due to the disclosures made by Satyam's (ex) Chairman.

 Auditors do bank reconciliation to check whether the money has indeed come or not.

 They check bank statements and certificates.

 So was this a total lapse in supervision or were the bank statements forged? No one knows yet.

 The company officials said they relied on data from the reputed auditors.

 The promoters:
 Since the promoters, in this case, held only about 8 percent shares, their idea to push
through the Maytas acquisition deal was defeated by an angry lot of shareholders.

 Other company bigwigs:

 Satyam's CFO Srinivas Vadlamani has already been arrested.
 But could only two or three people have managed to cook the books for years of a
company so large? Highly unlikely.

 The Sebi:
 The Sebi had in December given a clean chit to Satyam saying that it had not found any
violation of norms relating to takeover and corporate governance in its preliminary
 surveillance of the deal involving the acquisition of Maytas Infra by Satyam Computer
Services.

 The bankers:
 Satyam's books showed cash to the tune of over Rs 5,300 crore (Rs 53 billion) in its
banks. Now, the external auditors who check accounts, go by the bank statements to
verify if the books are showing the correct figures.

 Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc -- were supposed to
provide bank statements on a quarterly basis and bank certificates on basis of which
auditors go ahead and signed the balance sheet.

 Directors and independent directors :

 The role of the company's directors, including independent directors, in the entire
episode too has been exposed after the Satyam episode. Most of them essentially
remain 'nodders' in the boardroom and agree to whatever the management or the
promoters want to push through.

 The Satyam board, including its five independent directors had approved the founder's
proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties,
owned by the family members of Satyam chairman B Ramalinga Raju.

 The government:
 The government, on its part, was perhaps too busy projecting the stellar show of the
Indian IT sector and did not find it necessary to launch an enquiry into these
'complaints,' so to speak. Thus by way of negligence the government too is equally guilty
in not having managed to save the shareholders, the employees and some clients of the
company from losing heavily.
Affects on Employee’s
There was panic among Satyam employees as they faced an uncertain future. They were seen
discussing the developments among themselves at Satyam development centres here.

Besides, Satyam’s employee figures also stand overstated. Satyam which claims to have around
53,000 odd employees under its payroll, is being questioned over discrepancies in its numbers.

The company has development centres in various locations such as Malaysia, South Africa and
Egypt, the headcounts there are not very clear, particularly in the case of interns.

The salaries for training of interns in centres such as Malaysia are paid by the local government
there and not Satyam but they reflect in the company’s payrolls .

Pertinently, Satyam writes on each of its mailers that the figure of 52,865 was valid as on
September 30, 2008. Apart from the massive lay off exercise conducted by the company in the
last quarter of 2008 which would have shrunk the numbers by a few thousands, bankers say they
have a serious doubt on the veracity of the initial claim itself.
What Management could do??
 Change the name of the company.

 Reconstitution of the board :- Restore the management of the company and appoint some
reputed people as the board of directors.

 Try building confidence in the clients to get back the lost projects.

 The image of the company could be revived by a series of press conferences highlighting the
ongoing contracts with the clients.

 It could also be merged with any other software company.

 Tech Mahindra wins bid for Satyam Scam:

 Tech Mahindra is paying Rs1757 crore for a 31% stake in the company, or Rs 58 per share.

 Satyam Computer Services has now zoomed 15% to Rs 54.20 ahead of the announcement of the
highest bidder for the company on April 13, 2009.

 In India this moment was full of praise for the manner and speed with which the reconstituted
board of Satyam Computer Services found a strategic investor .

 This would send a strong signal globally that the country can respond well and fast to financial
crisis.