Satyam's Diversification, A Bridge To Nowhere (SAY)

Satyam Computer Services Ltd. (NYSE: SAY) is seeing its stock crushed this morning after the company’s board of directors approved acquisitions of infrastructure development companies Maytas Infra Ltd. and Maytas Properties Ltd.  What is interesting is that this acquisition of the two Maytas was being sold as a view to remove the risk from its core business of software and IT-outsourcing services.  The purchase price is roughly $1.6 billion, and technically these are majority stakes being taken.

This move is almost mind boggling.  Could you imagine IBM buying aconstruction company?  Could you imagine an infrastructure companybuying an IT-consulting firm?   Niche plays are one thing if they savecompanies money.  This is something else entirely.

It seems that the IT-outsourcing is reaching some peaks on its ownright now.  Some may be on the economic problems that the world isgoing through.  Some may be on the laws of growth after a critical masshas been reached. 

Taking on infrastructure seems a stretch here.  Actually, more than a stretch.

Satyam shares are paying the price.  Its market cap is now about $1.95billion, but that is only because shares are down right over 50%today.  Its prior 52-week trading range was $10.80 to $29.84.  Withshares at $5.85 and now at roughly 5-year lows, you have to wonder whaton earth the company was thinking.

Jon C. Ogg
December 16, 2008