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A C A S E S T U D Y A N A L Y S I SB Y
G R O U P 5
Satyameva JayateTruth Shall Prevail
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Agenda for Discussion
y Satyam ABrief History of the Indian IT Giant
y Ramalinga Raju Introduction about the IT czar
y The Untamed Tiger What was going wrong
y The Tiger got Unleashed Satyam Fiasco
y The White Collared Thieves Parties Involved
y The Ripple Effect Impacted Parties
y Rise n Shine How things were put in placey Lessons Learnt - Conclusion
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Satyam ABrief History of theIndian IT Giant
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y Moving away from traditional agriculture businessset up a spinning and weaving mill.
y R.Raju shifted to real estate business- Satyamconstructions.
y 1987-
Founded Satyam Computer Services with brother-in -law DVSRaju.
Incorporated as private ltd company
y 1991-
Offshore software project with John Deere & Co.(Satyam 1stFortune 500 cust.) announced
Recognized as public listed company; debuts on BSE
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y 1993
Satyam signs JV with Dun & Bradstreet for IT services
Awarded ISO 9001 certification
Satyam technology centre(STC) inaugurated JV with GE announced
y 1999
Satyam Infoway (Sify) becomes 1st Indian Internet company
listed on NASDAQ Presence established in 30 countries
y 2000 Recieves National HRD award from GOI
Dataquest names R.Raju as ITMan of the Year
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y 2001
Listed on NYSE
y 2002
BPO launched in Hyderabad
y 2006 Sets 1st global innovation hub Singapore.
Sets operations in China
y 2007 R.Raju , named Ernst & Young entrepreneur of the year
Opens development centre-Malaysia, Vizag(India)
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Disastrous Year
y 2008 Adopts new tagline Business Transformation together
Innovation award for Partner Excellence by software AG
y Dec 16,2008 Satyam board of directors approved proposal to acquire 100%
stake inMaytas properties & 51% inMaytas Infra
y Dec17-
Maytas Deal cancelled
y Dec 29- Resignation of Directors Start
y Jan 7,2009- Letter from Chairman tenderingresignation & financial irregularities
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Ramalinga Raju Introductionabout the IT czar
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Ramalinga Raju
Born-1954
Role model for efficient managemententrepreneurship, Leadership
Qualification and awards Jesuit School
MBA-Ohio University US
Ernst and Young Entrepreneur of the Year in 2007
Young Indians looked at him as their role model
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The Untamed Tiger What wasgoing wrong
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Cooking books : inflated profits and revenues
Nepotism : close the gap- merging the two firms
Omission of duty : management failed to see what isgoing wrong
Irresponsible directors
Nelsons eye : sebi was not informed about any fraudmoves of the company
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Continued
Promoters selling shares before the fall : sharesfallen from 26.1% to 3.6%- profit made over rs 1000crore.
Institutional investors
Political establishment : some connection with thepolitical establishments
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The Tiger got Unleashed Satyam Fiasco
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The Scam
y On 7 January 2009, companys previous Chairman Ramalinga Raju
resigned after notifying board members and the Securities and
Exchange Board of India (SEBI) that Satyam's accounts had been
falsified.
Raju confessed that Satyam's balance sheet of 30 September 2008
contained:
1. Inflated figures for cash and bank balances of Rs 5,040 crores as
against Rs 5,361 crore reflected in the books.
2. An accrued interest of Rs. 376 crore which was non-existent.
3. An understated liability of Rs. 1,230 crore on account of funds
was arranged by himself.
4. An overstated debtors' position of Rs. 490 crore (as against
Rs. 2,651 crore in the books.
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ACTUAL
DEBT WAS
2161.
OVERSTATED490 CRORES.
ACTUAL CASH
IN BANK WAS
321 CRORES,
INFLATED
5040 CR.
NO ACCRUED
INTEREST
376.34 CR.
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UNDERSTATED
LIABILITY
1230 Cr.
Which was
ARRANGED BY
MR.RAJU
5,040 + 376
+ 490 (Rs.
Cr)
Rs. 1,230
Cr
Rs.7,136
Cr
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The White Collared Thieves Parties Involved
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The Promoters
y Since the promoters, inthis case, held only about8 percent shares, their
idea to push through theMaytas acquisition dealwas defeated by an angrylot of shareholders.
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61.5710.42
19.4
8.61
Share of Investors
Institutions
Non Institutions
ADRs
Promoters
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Directors and Independent Directors
y The Satyam board, including its fiveindependent directors had approvedthe founder's proposal to buy 51 percent stake inMaytas Infrastructure
and all ofMaytas Properties, ownedby the family members of Satyamchairman B Ramalinga Raju.
y Despite the shareholders not beingtaken into confidence, the directorswent ahead with the management'sdecision.
y The decision of acquisitionwas, however, reversed 12 hours laterafter investors dumped Satyam'sstock and threatened action againstthe management.
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Other company bigwigs
y Satyam's CFO SrinivasVadlamani has already
been arrested.y But could only two or three
people have managed tocook the books for years of
a company so large? Highlyunlikely.
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Satyams auditors
y PwC has written a letter to the BOD of Satyamthat its audit may be rendered "inaccurate andunreliable" due to the disclosures made by
Satyam's (ex) Chairman..
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The Bankers
y If the auditors wereconned, it means that
either the bank statementand certificates wereforged
y Satyam's banks -- ICICI
Bank, HDFC Bank, Bankof Baroda, etc
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FI's who suffered loss at Satyam
Name Share (in Crores)
Aberdeeen Asset Managers Ltd 3.44
Fidelity 2.3
ICICI Prudential Life Insurance 1.66
Lazard Asset Management 1.45
LIC 1
Others Less than 1 Cr
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The SEBI
y The SEBI had given aclean chit to Satyam inthe probe on violation of
corporate governancelaw.
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Investment Bankers
y Investment banker DSPMerrillLynch was appointed by Satyam tolook for a partner or buyer for thecompany.
y DSPMerrill terminated its
engagement with the company soonafter it found financialirregularities.
y Merrill Lynch also sent theinformation and the reason for theirtermination of the contract to theBombay Stock Exchange, SEBI andeven the New York Stock Exchange.
y However, despite the fact that DSPMerrill Lynch blew the whistle, it isnot yet clear why it took such a longtime to inform the authorities, andwhy it did not let the public know ofSatyam's misdeeds.
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The Government
y The government too isequallyguilty in nothaving managed to save
the shareholders, theemployees and someclients of the companyfrom losing heavily.
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The Ripple Effect ImpactedParties
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StakeholdersModel
SATYAM
Shareholders
Directors
Customers
Employees
Competitors
Public
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y EMPLOYEES-It is nights and heartburns for the over 53,000 employees ofSatyam Computers as they conjure up worst case scenarios like non-payment ofsalaries, project cancellations , layoffs and equally bleak prospects outside.
y SHAREHOLDERS-The share prices of Satyam saw a sharp fall after Rajusconfession. The share prices fell down from 190 to 30 (approximately) in a
matter of a day.y CLIENTS- The debacle may force the clients to review their contracts and look
at other offshore suppliers
y PUBLIC-The incident has hurt public perception of Corporate India and islikely to hurt shareholders' confidence in India Inc.
y DIRECTORS- Satyam's CFO Srinivas Vadlamani and many others after thisscam, mainly due to their own mistakes of not actively participating in themanagement of the organisation had been arrested.
y COMPETITORS-The competitors were mainly benefited positively from thisscam.
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O N 1 1 J A N U A R Y 2 0 0 9 , T H E G O V E R N M E N TN O M I N A T E D N O T E D B A N K E R D E E P A K
P A R E K H , F O R M E R N A S S C O M C H I E F K I R A NK A R N I K A N D F O R M E R S E B I M E M B E R C
A C H U T H A N T O S A T Y A M ' S B O A R D .
Rise n Shine How things wereput in place
NEW BOARD APPOINTED
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y TechMahindra paid Rs1757 Crorefor a 31% stake in the company, at Rs 58 per share.
Satyam Computer Services zoomed 15% to Rs54.20 ahead of theannouncement of the highest bidder for thecompany on April 13, 2009.
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Lessons Learnt - Conclusion
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y Satyam was a wakeup call for India to clean up itsact. But did India Inc wake up? Experts and industrywatchers remain divided in the aftermath. While
there is a set of people who believe that Satyamdefinitely made promoters sit up and makealterations, there is an equally strong lobby that saysnothing has changed in the real sense of the term.
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P R E S E N T E D B Y : -
G A U T A M G U L A T I ( 2 1 9 )K E Y O O R P R A S H A N T D I W A K E R ( 2 2 4 )
M E H A K A G G A R W A L ( 2 2 6 )M O N I C A V I R B H A N ( 2 2 7 )U P A S A N A S I N G H ( 2 6 5 )U R O O J A N S A R I ( 2 6 6 )
M O H I T M O T W A N I ( 2 7 0 )S H I V A N S H S H A R M A ( 2 7 5 )
Thank you
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