The street may have given thumbs-up to the better-than-expected financial health of Satyam Computer Services, but the troubles for the scam-hit firm are far from over.
Apart from being locked in class-action lawsuits and the Upaid case, promoters of three companies that Satyam had acquired in the past have served legal notices seeking termination of the asset purchase pacts or asking for guarantees on payments due under the buyout agreements.
In a disclosure to the stock exchanges, Satyam said that acquisition-related disputes faced by it post the resignation of its former Chairman, Mr B. Ramalinga Raju, pertained to companies such as Caterpillar Inc (Satyam had announced its intention to buy the latter’s market research and customer analytics business unit on April 2008 for a total consideration of $60 million); Bridge Strategy Group (the Chicago-based strategy and general management consulting firm that Satyam intended to acquire for $35 million); and S&V Management Consultants (the Belgium-based supply chain management consulting firm whose acquisition price tag was €22.5 million). However, in at least two of these cases, Satyam has entered into negotiations to resolve outstanding issues.
Legal opinion
Legal experts say that a lot would depend on effective dealing and countering of liabilities, such that the business is not impacted. “The very fact that the company has disclosed the information indicates that there could be some potential outflow. But there is a full dispute resolution process which is normally agreed upon in acquisitions, and all those processes will have to be exhausted first,” said Mr Akil Hirani, Managing Partner, Majmudar and Co.
Satyam’s detailed communication to the BSE said, “Following the January 7, 2009 resignation letter of Satyam Former Chairman, on January 15, 2009 and January 22, 2009, Caterpillar Inc had served legal notice notifying the company of the termination of its asset purchase agreement and transition services agreement, and demanding an immediate payment of the unpaid principal balance of $40 million due under the Promissory Note. In March 2009, the parties began negotiating to amicably resolve the outstanding issues and the settlement negotiations are at an advanced stage.”
On January 21, 2008, Satyam had announced its plans to take over 100 per cent of Bridge Strategy Group for $35 million to be paid over 2.5 years comprising initial consideration, deferred non-contingent and contingent consideration. While Satyam has already made an initial payment of $19 million to the seller, under the terms of the Share Purchase Agreement, the balance payments are to be made in two stages – $8 million in August 2009 as guaranteed payment, and a similar amount in October 2010 as key executive retention payment.
However, post the resignation of Satyam’s disgraced Chairman, the sellers comprising the key executives of Bridge served notice to Satyam claiming that they had a “good reason” under the share purchase agreement to leave Bridge and still retain the rights to receive the full balance of consideration.
Similarly, in the case of S&V Management Consultants, the sellers have served notices on Satyam asking for guarantees for all future payments owned under the acquisition agreement ( €11 million). The sellers were also asking Satyam to pay €1 million in past due payments, which were supposed to be met from S&V’s own business cash flows and reserves, but were delayed due to delay in collection of S&V’s receivables. “Satyam is in the process of paying the Euro one million in past due payments,” it said.
Source: The Hindu Businessline