TechMahindra - Satyam deal - Why there is wide divergence in the bids

Tech Mahindra - Rs58/share - Winner
L&T - Rs45.9/share
WL - Rs20/share

The wide variation in the bid prices submitted by the three contenders for Satyam Computer Services has set off a debate on whether this could be due to the several “unknowns” with respect to Satyam (whose accounts are yet to be restated), or due to the varying priorities of the bidders themselves. The highest bid, from Tech Mahindra, was for Rs 58 a share; the second highest, from L&T, was 21 per cent lower, at Rs 45.90. The third bid, by WL Ross, was way lower at Rs 20 a share.

“Acquisition transactions are based on assumptions and there are assumptions with reference to the future, customers, employees, lawsuits… there are so many variables. And considering the past of this company, it becomes somewhat difficult to make these assumptions and make judgment calls. I guess that is the main issue,” said Mr Y.M. Deosthalee, Chief Financial Officer of L&T.

When the number of bidders is very low, it boils down to quoting the lowest price that you can get away with. Had there been more bidders, one would not have such a huge divergence, say merchant bankers. As for WL Ross and Co’s low bid, this was in line with their profile as a distress buyer globally, bidding at very low prices in the hope of a bargain buy, an investment banker remarked. However, if one were to discount WL Ross, the divergence between the bidding parties is not very huge, he said.

“This is a very unusual situation; there are different reasons for people to acquire this company,” said independent investment analyst Mr R. Balakrishnan, “The three-year lock-in period appears to have acted as a mind block for some bidders.

“WL Ross’ bid came at a lower price because even though they are a private equity fund, they would have probably liked to flip it over after some time rather than wait for three years.”

Source: BusinessLine