Satyam in Turbulent waters - Chairman resigns

Under attack over 1.6 billion dollar acquisition fiasco of firms promoted by his family Satyam Computer Chairman B Ramalinga Raju on Wednesday resigned and said he would subject himself to the "laws of land".
Minutes later, the company also announced resignation of its Managing Director B Rama Raju.
The resignations, ahead of January 10 board meeting pushed the company into crisis and paved the way for immediate restructuring of the board and the management.
Shares of the company also plunged by over 40 per cent soon after the resignations.
Satyam, considered a ripe proposition for acquisition, was pushed into crisis after Raju was forced to abandon the acquisition of Maytas Infrastructure and Maytas Properties promoted by his son.
In a regulatory filing the company said Raju would continue to be the chairman till the board is expanded.
"Under the circumstances I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible", B Ramalinga Raju said.

Raju writes letter to the Board
In a letter to the Satyam board members, Raju said that the company reported inflated revenues over years. He said that he feared takeover due to poor finance performance. Coming clean on financial irregularities, he said that the company had Rs 1,230 crore worth of understated liability as of September 30. His decision was conveyed to the company’s board members. The company was supposed to hold a board meeting this Saturday. Even since announcing the controversial Maytas deal, Raju was under pressure from investors as the decision raised issues over corporate governance.He said that the balance sheet has inflated cash & bank balance of Rs 5040 crore. No board member had any knowledge of the real situation as against books.

The balance sheet was inflated and accrued interest of Rs 376 crore in the books is non-existent. He further writes in the letter that Rs 1230 crore was arranged to Satyam, which is not reflected in books. Ram Mynampati will act as interim CEO. Merrill Lynch can be entrusted to explore the merger options. He asks auditors for restatement of accounts in the light of new facts. Raju in his letter further said that the Q2FY09 reported revenues of Rs 2700 crore Vs actual revenue of Rs 2112 crore. The Q2FY09 operating margin reported was Rs 649 crore against Rs 61 crore. The Q2FY09 numbers had Rs 588 crore of artificial cash in books. He said that he is prepared to subject himself to law of the land and face the consequences. The account manipulation started several years ago. An attempt to eliminate the manipulation was failed, he added.

How it all started ?
The doom for Satyam has all started with the World bank's public outcry over Satyam in feb 2008.The dispute is centred around claims that Satyam had provided “improper benefits to Bank staff and failed to maintain documentation to support fees charged for its subcontractors” resulting in Satyam being declared ineligible to receive direct contracts for a period of eight years. "

Although this dispute has been happening behind closed doors for some time, with the initial temporary suspension of Satyam having taken effect in February 2008, the timing is very unfortunate for Satyam. It came less than a month after the previously announced acquisition of Maytas Infra and Maytas Properties was called off following adverse investor reactions. This acquisition also resulted in action being brought against Satyam and some of its senior staff by its client the mobile payments specialist Upaid, which alleged that the acquisition was an “attempt to strip all surplus cash from Satyam” – cash that would otherwise be available to pay Upaid, if Satyam had lost the case. 26 December saw the problems made worse by the resignation of Dr Mangalam Srinivasan, one of the independent directors of Satyam.

The Board of Satyam has some best brains in business. They include Vinod Dham, known as the “father of Pentium” for his role in developing the computer chip made by Intel; T. R. Prasad, dean of the Indian School of Business; and Krishna Palepu, who teaches at Harvard Business School above all B. Ramalinga Raju, Satyam's founder and chairman. Satyam is no ordinary company either. Even if is spelt in the right direction or reverse, no body can take away its position as India's fourth-largest IT outsourcer.