The Dhritarashtra Effect: Lessons from the Satyam-Maytas Fiasco

25 12 2008


It is more than a week since Satyam announced the proposal to buy into Maytas Properties and Maytas Infra. It took back the proposal after the media and investor community expressed their outrage strongly.


 The episode continues to occupy the first page in the newspapers. The Chairman of Satyam, B Ramalinga Raju, must be wondering why despite the next reversal of the decision why the uproar has refused to die. Besides, the fall in reputation, it is hurting the promoters where it hurts most, the stock price. Since the day the Satyam-Maytas proposal was announced, the Satyam stock has fallen from Rs 232 to Rs 134.


Satyam is not the first company to merge unrelated businesses of promoters. In fact, even after the Satyam-Maytas episode, JP Associates has announced a large scale merger of several of its promoter companies in unrelated businesses to its public listed company. Yet, Satyam received more flak than the others.


Some lessons from the Satyam-Maytas episode are:


Ø Foreign Institutional Investors (FIIs), when they smell a rat, vote with their feet immediately. They do not care if it is a loss-making proposition. Immediately, on announcement Satyam ADR, tanked by 58% in NYSE


Ø Investors have their own understanding about synergies. The synergies between IT and infrastructure explained by Satyam management, was not bought by the analysts. Even if there was one, it was a complete communication failure. Analysts just could not dissociate the fact that the Maytas twins werecompanies owned by Mr. Raju’s sons companies.


Ø Even if the merger was perfectly legal and Satyam was not violating any law, investors have their own perception of what is correct. Even after Satyam backtracked, the stock lost value considerably. The management lost the trust of the shareholders, with this episode.



Ø A Public Limited Company cannot be treated like a Private Limited company, if promoters have minority stakes.


Ø Timing of merger announcements is also important. The same merger deal if it had been announced in December 2007 could have been hailed as a masterstroke. Real-estate and infrastructure were hot sectors then and IT was under rough weather because of the weakening dollar.



Ø Having a high-profile of Board does not ensure legitimization of such deals, which blatantly favour the family of the promoters. In case of Satyam, the board meeting was chaired by the ISB Dean Prof Rammohan Rao, and the Chairman was not present when the decision was being finalized.


Ø Shareholders definitely wish to know how the valuations were arrived at and who has carried out the valuation. Satyam vaguely said, one of the Big Four audit firms had done the Maytas properties valuation. Later each one of them denied individually. This certainly made the whole valuation exercise look dubious.


Ø If Satyam had clearly believed that it had synergies with Maytas, it should have stuck it out. By back-tracking immediately, without even convening another board meeting, Mr Raju, gave an impression, that he tried pulling off a fast one, and since it has been seen through, he backtracked. This even made a newspaper give the headline “Raju Ban Gaya Gentleman “, as if he was not one before.


Ø The impact of such a gross act of discretion by industry biggie like Satyam can hurt the entire sector (the Indian IT industry in this case).


Ø A high-profile board is no guarantee of higher standard of corporate governance


Interestingly, Mr. Raju’s fall from grace has a parallel in the Hindu epic – The Mahabharata. Dhritarashtra, otherwise the righteous patriarch of the ruling dynasty of the kingdom of Hastinapur suffered a lapse of his usual sense of propriety, blind sighted by indiscriminate affection for his progeny.  


Everything said and done, the hasty retreat notwithstanding, the synergy effect of the Satyam-Maytas (the latter name is formed of the same letters as those of Satyam, in reverse order, let’s say in negative order) deal is now apparent: Satyam + Maytas = 0.


– G. Mohan


Quiz on the Business of Healthcare

14 12 2008


Q 1: By what name Chemical, Industrial and Pharmaceutical Laboratories is popularly known as? Hint: This company was founded in 1935.


Ans: CIPLA Ltd 


Q 2: This company is named after its founder, who was an Ayurvedic doctor in Bengal, and used to travel to far-flung villages to treat people. He founded this company in 1884, which was named after a shortened form of the way he was usually addressed. Name the company.


Ans: Dabur, by Dr S.K.Burman



Q 3: Physicist Wilhelm Conrad Roentgen wasn’t out to revolutionize the medical field, but that’s exactly what he did. The curious Roentgen wished to see if cathode rays could escape “a glass tube covered in black cardboard.” What did Roentgen discover which led him to win a Nobel Prize?


Ans: X-rays 


Q 4: What is common to Cheminor Drugs, American Remedies Limited, BMS Laboratories, Betapharm, and Meridian Healthcare?


Ans: All the companies are now part of Dr Reddy’s Laboratories Ltd. 


Q 5: Find the odd one out among the following





Ans: Aviva. Aviva is not an HMO. All others are.


Q  6 : In 1983 this Act was passed in the USA to provide  to provide incentives to develop treatments for rare diseases affecting fewer than 200,000 people nationwide. Thanks to the Act, over 160 medicines were approved to treat rare diseases between 1995 and 2005. Name the Act.


Ans: Orphan Drug Act


Q 7: With which famous hospital chain would you associate Dr V? The mission of the organisation in in the words of its founder was “To eradicate needless blindness”.

 Ans: Aravind Eye Hospitals, founded by Dr. Venkataswamy


Q 8 : Born on May 19, 1795 in Maryland USA. This businessman made his money in selling corn, whiskey and later invested heavily in Baltimore and Ohio Railroad. He died without heirs on December 24, 1873. He left 7 million US Dollars mostly in Baltimore and Ohio railroad stock for philanthropy. This sum was the single largest donation for setting up educational institutions till that time. Name this philanthropist, on whose name several world-class healthcare institutions are surviving to this day.


Ans: Johns Hopkins

– G. Mohan

Quiz on Star Hotels of India

9 12 2008



Q1: The picture postcard of Gateway of India in front of Taj Mahal Hotel is one of the most representative images of Mumbai. Which was built first, the Gateway of India or the Taj Mahal hotel?


Ans: Taj Mahal Hotel was built in 1903 and the Gateway of India in 1928



Q 2: Trident-Oberoi, at Nariman Point,  was a victim of the recent attacks, was built by the Oberois in the 1970s. As a part of the financing deal from American Exim Bank, they had to take an American collaborator. Who was the collaborator?


Ans:  Sheraton


Q 3: During 1993 in Mumbai, a well-known 5-star hotel in Bandra, home to several Bollywood blockbusters had a bomb attack. The hotel had remained closed since then, due to litigation, change of ownership etc. The hotel is now under Claridges Hotels and is expected to be open to guests in 2010. Name the hotel.


Ans:  Sea-Rock , earlier known as Sea Rock Sheraton



 Q 4: Rai Bahadur M.S. Oberoi, the founder of the eponymous Oberoi Group of Hotels, was manager of a hotel owned by a British family. When they were leaving India, he bought it from them. Even now, this hotel is part of the Oberoi chain. Name the hotel and the city.


Ans: The Clarkes Hotel in Simla


Q 5: Late Lalit Suri, the hotelier-turned-politician built the Holiday Inn Crowne Plaza in New Delhi. This has expanded by acquiring several ITDC hotels. After his death, the hotel chain has renamed itself. Name the chain.


Ans : The Lalit



Q 6: Of which brand of hotels is Asian Hotels, promoted by the Jatias and Sarafs, the holding company?


Ans: Hyatt Regency in Delhi, Kolkata and Mumbai  



Q 7: She was a long-serving director of Indian Hotels, the owner of Taj Group of Hotels. She has promoted a chain of Indian restaurants, called Bombay Brasserie which has branches in many foreign cities starting with London. Name the person.


Ans: Camelia Punjabi


Q 8: This corporate honcho cut his teeth in the hotel industry by managing Hotel Maurya Sheraton in New Delhi. He was inducted into the board of ITC in 1984, taking charge of the Welcomgroup. He pioneered the first private sector Degree Institute in Hotel Management- WelcomGroup School of Hotel Administration, Manipal. Now he is the Chairman of a leading Indian company. Name him.


Ans: Yogi Deveshwar, ITC Chairman


Q 9: Anil Madhok, the former MD of Oberoi Group of Hotels, struck out on his own to start a chain of mid-market hotels in 1994. Now this chain claims to be the fourth largest chain of hotels in India with 36 properties. It is affiliated with Carlson Hospitality. Name this chain.


Ans:  Sarovar Group of Hotels and Resorts


Q 10: Bikki Oberoi was in Jaipur looking for a haveli to buy for himself and had to stay at the Rambagh Palace. “I took my own servant I took my own cook. I even took my own toilet paper, “ he said. He hated the Rambagh Palace so much that he decided to build his own hotel in Jaipur. This hotel and resort, has gone on to become a luxury hotel, considered one of the top luxury brands from India.


Ans : Rajvilas


– G. Mohan

Cellphone Recycling

7 12 2008

 In an interview to ET, Robert Anderson, Executive VP of Nokia has commented that “For the first time ever, the replacement market is now larger than the entry market in countries such as India.” This insight has led manufacturers like Nokia to provide attractive designs and features in mid-level handsets.

This insight also means that several million handsets are being discarded every month. India already has over 300 million cellphone connections. India adds about seven million new mobile connections every month. If replacement market is bigger than the entry market, atleast four-five million handsets are being discarded every month. This will only grow in the future.

These discarded cellphones are lying in homes or godowns of the cellphone retailers, who often lure the customers to buy new handsets with an exchange offer. The circuit boards of cellphones have precious metals which can be recovered. The cellphone chargers have useful copper which can be easily recycled. On the flipside, these electronic wastes are harmful to the environment if discarded or incinerated unscientifically.

In several European countries, the onus of cellphone recycling has been put on the original handset manufacturers. This has led companies like Motorola to come up with a program titled ‘Race to recycle’  which has been designed for kids and schools to collect old discarded cellphones. Motorola funds this program by providing grants to schools. 

It is time for  the Indian government to issue clear guidelines for cellphone disposal and force the handset manufacturers to set up a reverse supply chain to collect the old handsets.This also presents an opportunity for small businesses to create collection systems in towns and cities. The handset manufacturers will surely need to use their services to make the recycling schemes work efficiently.

– G. Mohan

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