SAP's golden opportunity in Satyam

Posted by: Manjeet Krpalani on January 12, 2009

As the Satyam drama unfolds, becomes more mysterious and draws other players into its web of deception, the immediate thoughts of investors and analysts are: Will Satyam as a company live or die? If it dies, how will its assets be distributed? If it is broken up, who will find the pieces valuable?

Smart executives and industry insiders point out to a big fact: That 46% of Satyam’s business comes from package implementation, and within that, the biggest chunk of work is done integrating SAP’s manufacturing package. Wipro, TCS, Infosys, IBM, Congnizant – they all do SAP implementation, and in various areas like finance, pharma, chemicals, retail, as also manufacturing. But Satyam is the second largest in SAP manufacturing package implementation and maintenance player in the world.

Now that’s a strong position – and a valuable piece of business. Agreed, it’s not at the very high end of the value chain, but could be worth a lot to SAP, especially now. Analysts estimate it could cost SAP under $100 million to buy a healthy business – a bargain for SAP.

Two years ago, the German software maker may not have known what to do with a battered Satyam. But now things have changed. First, the largest conglomeration of software professionals is based in Bangalore today, and they are among the best in the world, doing high value work. Second, SAP wants to move into high value consulting from being just a software product company. Third, SAP wants to protect its customers and keep their accounts at Satyam viable.

So the company may be well disposed to buying that chunk of Satyam which works SAP’s software for clients. Satyam employees have the expertise, and it will give SAP a leg up, while buying it grace from its customers – particularly as software sales aren’t so strong in these recessionary times.

Saswato Das, SAP AG spokesman confirms that “SAP stands by its customers and will do everything to support them” but as for the possible buyout, he says only, “we are monitoring the situation.”

The Indian government has appointed three top-level, credible businessmen of India to head a new board at Satyam. The board met this morning, with the mandate of restoring confidence in the India story, and in Satyam’s employees, customers and investors. It has stilled some of the jangled nerves after Satyam chairman Raju’s arrest yesterday. But customers have already planned their exit strategies from Satyam, and are unlikely to stay with the company for more than the next three weeks, say insiders.

It’s better to salvage the good left in Satyam, and preside over an orderly winding up, than to witness the vultures circling overhead. SAP should keep its check ready.

Reader Comments

dw

January 17, 2009 1:17 PM

I could see them buying but only if they didn't have to take any liabilities as how can any company that purchase Satyam (or parts of it) know what they are getting into?

Glenn

February 10, 2009 10:12 PM

I don't think SAP would buy Satyam even at the bargain price because it would put them in direct competition with IBM services, Accenture, TCS, Wipro, etc. These companies drive billions in channel dollars to SAP. Buying Satyam doesn't move SAP upstream (SAP's consulting services derives some of the highest rates in the business) it takes SAP downstream to commodity work. I thought when this all occurred that a MNC would swoop in and buy Satyam (IBM, Accenture, HP-EDS). IBM even had serious talks with Satyam several years ago with nothing coming of it. Given that the Indian Government isn't keen to MNC's in this economic environment it is like L&T or HCL will be the likely acquirer.

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