SATYAM is up for grabs, pal

Ok. Enough is said about SATYAM COMPUTERS in the last one week. I come straight to the point. Dice begins to roll on who gets to buy SATYAM now that it is a sitting duck for a strategic investor / a PE raider. Want proof? Check out the huge volume of 90 million shares changing hands in the Indian stock exchanges (NSE and BSE) even as we still have a good 2 hours of trading left!!

I stuck my neck out and wanted a piece of action. Bought some SATYAM stock today. Here is some perspective on the India Offshoring scenario that I checked out before buying it. Feels good, buddy... the stock is already up by 5% from the price I bought...

So....I am already in-the-money :-) on my SATYAM buy of this morning. Aren't you too?

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Tata-JagRover bet - will it payoff...?

“It is dangerous to substitute return on equity with business hubris when doing deals, and the whole thing had better make business sense” – goes T.N.Ninan of Business Standard on the Tata-Jaguar/Land Rover deal.

Ninan is sceptical even though Ratan Tata is getting both brands for $2 billion, much less than $5 billion paid by Ford to acquire them back in 1989 and further $10 billion that went into Jaguar to refurbish it. Rover is profitable, but Jaguar reportedly lost over $700 million in 2006 and perhaps over $550 million in 2007; it is expected to lose $300 million more in 2008. Rover sells close to 200,000 vehicles a year, but Jaguar sales have been falling quite sharply in its main market, the United States. He wonders whether Tata has bitten off more than he can chew. I am also reminded of Mitchell Madison and Whitman Hart deal where two billion $$ companies merged only to find the combined revenues were far less than $2 billion.

While Ninan concedes – going by earlier Tata buyouts overseas including Corus - that “Tata seems to have a good head for corporate strategy”, he doubts whether Tata would be able to achieve what Ford could not. He cites the examples of recent Sovereign wealth fund investments in Citigroup and Morgan Stanley (there are UBS, Merryl Lynch and Bear Stearns too) where the investors remain passive and would not insist on management control - but Indian acquirers love control. I say they have the chutzpah.

May be Ninan feels Tata could be in for a jam in this deal because of dealer perceptions, as he says “the people whom Tata would want on its side are the dealers in the US, but they seem to think Indian ownership is poor branding”.

My sense is that Ninan’s comparison of Tata-Jag Rover acquisition with fund infusion into American banks by Asia’s Sovereign funds is not quite up. Those funds are basically financial investors that focus on maximising ROI on their forex surplus as a part of their portfolio management strategy. To that extent, it's their fiscal management strategy too. They are concerned more about returns and not where it comes from. They simply don’t have the strategic bandwidth to take control and run diverse businesses that they invest in. Moreover, the managements of American banks like Citi, Merryl Lynch, Morgan Stanley are not bad by themselves going by the size and scale they've notched up. Just that they took a few bad bets that backfired. But that is to be expected because banking is indeed a business of betting on credit risks of varying degrees. What if those bets had paid off? But Tatas (and Lenovo example that he cites) are strategic investors with a track record of running global businesses and it’s not right to put them in the same basket as pure financial investors like wealth funds. The rationale behind their investments are fundamentally different. Tata would have certainly done their math and if the experience of Corus acquisition and its on-going integration is anything to go by, they would make the most of Jaguar-Land Rover deal too.

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Scouring the Valley for deals

Sometimes, if you keep plugging away, you can pull something off — even if it’s daunting during the low points along the way. Yipes, which provides “managed Ethernet services” for corporate customers ran some endless VC funding cycles in the past. Launched in 1998, it had gone through bankruptcy and had raised a whopping $385 million — a seeming impossible amount to generate a profit for its investors. One more symbol of the excess of the Bubble.

Today the company has just been acquired for $300 million by Reliance Communications. Groups like Pramod Haque’s NVP, Focus and Sprout kept investing in the company through the years and probably didn’t make much. In the VC industry, they say any exit is a good exit. The deal works out to about 10 times 2006 revenues. In an earlier interview, CEO John Scanlon told that Yipes was on track to do $70 million in sales this year and is cash flow positive. It had better be.

Reliance also owns FLAG Telecom and this purchase makes them a competitor to Level 3 (LVLT). Yipes extends the reach of FLAG into US metros, especially in the Bay Area and East Coast. The traffic between India and US is on an upswing, and the deal makes perfect sense. Over past couple of years, large corporations have seen their data needs go up exponentially. File transfers, data back-ups, VPNs - all need more bandwidth that what the traditional means can provide. The long-in-the-tooth T-1 doesn’t cut it anymore. Instead an increasing number of corporations are opting for Ethernet-based services.

Yipes is happy to sell exactly that: multi-megabit Ethernet services that were more than a standard 1.54 megabit/second T-1 connection and the expensive DS-3 connections. Reliance will have to keep buying if they want to be competitive in US. It will also be interesting to see how the pros at Yipes handle the meddling family-style management of Reliance, as Om Malik had remarked.

To me, scavenging the Bay area for Bubble leftovers looks to be a good idea. Especially when we have a `fully stuffed’ Reliance ADAG steamroller humming in our backyard, hungry for more….

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