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Satyam to divest Sify stake

Satyam Computer Services Wednesday said that it would sell its 52.5 per cent stake in Nasdaq listed Satyam Infoway in part or full as it wants to focus solely on software services.

B Ramalinga Raju, Satyam chairman, said, "we want to close the deal as early as possible, though in the given circumstances, it is difficult to fix a timeframe."

As a part of the process, Sify, Satyam Computers' ISP subsidiary, will divest its "growing and profitable software services business" to the parent company in an all cash transaction of around $7 million. The modalities of the cash transaction would have to wait till the shareholders of Sify give their nod to the deal.

"We believe that both the companies would gain by becoming 'pure play' companies in their respective spaces: Satyam, in IT services space, and Sify in Internet space. We have been receiving buying interest from prospective strategic investors to buy Satyam's stake in Sify from time to time. However, we are looking for an attractive valuation," Raju said.

In a press release issued by Sify in madras, the company said, "Sify has proposed the sale of its software services business, which principally involves web services, to Satyam Computers for a fair value to be determined subject to due processes of Sify's board and shareholders approval".

The division has achieved a sales figure of $4.2 million for the first half. The buyout will be effective from January 1 next year. This business will add substantial value to Satyam in view of the division's good customer base spread over US, India and Australia and top quality alliances such as with Broad Vision, Open Market, Sterling Commerce etc.

The fair value of the business, which contributes 20 per cent of Sify's turnover last quarter, would be determined at a later date, the company said. Sify has also over the past couple of quarters been reducing the burn rate and had recently announced that its burn rate was hovering around Rs 250 million per quarter.

Analysts think that this could make it an attractive candidate for a possible takeover as the company is earning significantly more revenues every quarter and at the same time been lowering its losses.

According to Sachin Mohindra, fund manager and director, Chescor, "This is a good move for Satyam as it would considerably bring down the cash burns that Saytam Computers has been incurring for sometime."

A Sify spokesperson said the decision was taken after it was found that the IT software services businesses of both the companies were offering the same services and also competing against each other. The spokesperson added that Sify, if needed, would outsource the same services from Satyam Computer.

The software services business was part of Sify's corporate services and consisted of data & network services and e-Consulting services. The corporate services division constituted 61 per cent of the top line revenues in the last quarter while revenues from the portal and ISP business contributed 10 and 20 per cent respectively.

Revenue from corporate services during the last quarter increased to $6.6 million from $5.6 million as compared to the corresponding quarter last year reflecting a growth of 18 per cent.

Over sequential quarters, revenues from the corporate services business grew 14 per cent. In the last quarter, the division contributed $5.8 million in revenues to the total income generated.

"The acquisition by Satyam Computer Services Ltd. will ensure Sify's software services customers in India, Australia, and USA will get high quality continuity of services. It is expected that the sale of the software services business will not have adverse impact on Sify's EBITDA levels and its path to profitability," said R Ramaraj, managing director, and CEO Satyam Infoway.

Reacting to the news of the sale of Satyam Computers' stake in Sify, Jose Koshy, vice president-sales, NetKracker, said, "It makes sense for Satyam to sell their stake since their core competency is software and internet is a different ball game altogether.

Then Satyam's cash burn was pretty high--around Rs 450 million per quarter and according to media reports they had brought it down to Rs 250 million recently."

The market valuation of Nasdaq listed Sify is around $102 million so it made sense for them to sell a part or whole of their stake, he said.

Analysts expect a lot of consolidation in the Indian segment now since there are about 450-odd players in the market and there is space only for five to six players.

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