The purchase of two struggling construction companies for $1.6 billion (£1 billion) by a successful technology group was always likely to be regarded as curious.
Ultimately, what most onlookers found most odd was that the board of Satyam, India's fourth-largest IT outsourcer, did not foresee that the acquisitions would trigger one of the country's most vivid displays of investor outrage.
Under any circumstances, diversifying so radically at a time when Satyam's rivals are hoarding cash to weather a global slowdown, would have been baffling, analysts said.
That the two target companies — Maytas Properties and Maytas Infra — were controlled by Satyam's founder and chairman, B. Ramalinga Raju and run by his sons, triggered a shareholder revolt of an intensity seldom before seen in India.
The purchase of two struggling construction companies for $1.6 billion (£1 billion) by a successful technology group was always likely to be regarded as curious.
Ultimately, what most onlookers found most odd was that the board of Satyam, India's fourth-largest IT outsourcer, did not foresee that the acquisitions would trigger one of the country's most vivid displays of investor outrage.
Under any circumstances, diversifying so radically at a time when Satyam's rivals are hoarding cash to weather a global slowdown, would have been baffling, analysts said.
That the two target companies — Maytas Properties and Maytas Infra — were controlled by Satyam's founder and chairman, B. Ramalinga Raju and run by his sons, triggered a shareholder revolt of an intensity seldom before seen in India in the country.
The acquisitions would have netted the Raju family as much as $570 million while exhausting Satyam's cash reserves and driving it into $400 million of debt.
After IIFL, an Indian broker, calculated that Satyam had valued Maytas Properties at $1.3 billion — nearly six times its net worth of only $225 million — one foreign fund manager said the deal reminded him of the "bad old days when cronyism ruled India," a country still battling endemic corruption. "I thought we'd been through this. Wearisome is not the word," he added.
In an acrimonious call with Satyam's management, Chetan Sehgal, of Templeton Asset Management, said he was "willing to go to any length to prevent [the acquisition] from happening."
Claiming to be shocked by the level of investor anger and chastened by a 30 per cent plunge in the group's share price, Satyam abandoned the deals on Wednesday. "If we had anticipated [this reaction], we wouldn't have done this in the first place," Mr Raju said.
However, analysts say the damage has been done and that Satyam's — and perhaps even India's —- reputation for sound governance has been badly tarnished.
Sachin Jain of Jefferies & Co, the US-based brokerage, said: "This clearly raises questions about what kind of corporate governance you have in other Indian companies."
That the deal was initially approved, apparently by a unanimous vote by the Satyam board, has placed in doubt the judgement of some of India's most feted business figures.
The board includes Vinod Dham, a scientist known as the "father of Pentium" for his role in developing the breakthrough computer chip made by Intel; TR Prasad, dean of the Indian School of Business, and Krishna Palepu, who teaches at Harvard Business School.
Also cast in a dim light by the affair are those who dole out corporate governance awards. Just three months ago, The World Council for Corporate Governance, with Ola Ullsten, the former prime minister of Sweden as its lead judge, ranked Satyam as among the best run companies in the world.
Today, still struggling to placate investors, Satyam said it was looking at a share buyback instead. Harit Shah, of Angel Broking in Mumbai, said: "This is the least they can do to boost investor sentiment … it will take a long time for them to forget this incident."
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