UPDATE 3-Satyam gains on talk of PE stake, management change

Tue Dec 30, 2008 11:53am EST

(Adds Satyam out of compliance with exchange rules)

By Narayanan Somasundaram and Ami Shah

MUMBAI Dec 30 (Reuters) - Shares in outsourcer Satyam Computer Services SATY.BO jumped for the second day on Tuesday on speculation of private equity interest and a management change, while one of its largest investors said it could sell its stake.

Shares in the embattled company, which is India's fourth- largest outsourcer, ended 8.3 percent higher at 160.60 rupees, its highest close in a week, extending Monday's gains of nearly 10 percent.

Shares of Satyam, which is also listed in New York SAY.N, have tumbled since a botched attempt two weeks ago to buy two companies in which its management held stakes and after news it had been barred from doing business with the World Bank.

The shares dipped to their lowest in five years last week, but have rallied on market talk and a newspaper report that institutional investors may offload some of their holdings.

"We will be open to that idea but it depends on what the price will be," Adrian Lim, an investment manager at Aberdeen Asset Management said on television channel CNBC TV18. "We are not discounting any particular alternative at this point."

Aberdeen owned 5.12 percent of Satyam as on Sept. 30 and is the second largest holder in the firm, according to stock exchange data. The founders own 8.61 percent, the data showed, but they have pledged all their shares to financial institutions. [ID:nWEN2110]

Any buyout would have to happen at a "considerably better price" than the current levels, Aberdeen's Lim said.

PRICE EXPECTATIONS

The stock has lost about 30 percent of its value since it announced plans to acquire the two sister firms for $1.6 billion and then canceled the deal two weeks ago.

"Satyam is a good bet for short-term trade with reports (private equity) players are looking at a stake in the company," said Amitabh Chakraborty, president of equities at Religare Securities.

A majority of the private equity firms and investment bankers Reuters spoke to on Tuesday said interest was very high but that high price expectations may be a stumbling block.

They declined to be named as they are not authorized to speak to the media.

Hopes of a management change also boosted shares after the founders said some part of their pledged stake could have been sold by financial institutions to meet margin calls, a step which would potentially dilute their holding.

"There has been buying on some ray of hope of a management change, but I maintain a negative view, as the main issues have not changed," Jigar Shah, senior vice president at Kim Eng Securities, said.

Four independent directors resigned from Satyam's board in the past week, while a fifth said on Tuesday he would stay on. The company has said it will hold a board meeting on Jan. 10 to consider options to improve shareholder value and corporate governance. [ID:nBOM236713]

Only two of the Satyam's five remaining directors are independent, which means that it has fallen out of compliance with Indian stock exchange rules that require at least half of a company's board members to be independent.

Satyam said in a filing with the U.S. Securities and Exchange Commission on Tuesday that it has until June 27, 2009, to comply with those requirements.

"The company is taking steps to fill some or all of the vacancies caused by these resignations as soon as possible," Satyam said in the SEC filing.

Daljeet Kohli, Emkay Global's head of research said, "The business prospects of the company remain good ... The only need is to go for a change in the board or the top management." He has a "hold" rating on the stock with a target of 190-200 rupees. (Additional reporting by Prashant Mehra and Jim Finkle; Editing by Hans Peters and Derek Caney)

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