What, will, happen, Satyam, now?

Everybody is busy discussing what has happened with Satyam. Allow me to present what might happen in the future. This is not a prediction but a educated guess at the possible scenarios before Satyam company.

At least 10,000 employees will be losing their jobs in the next 3 weeks. It is rumored that 14000 resume’s are flying around from Satyam’s employees. A lot of uncertainty around the future and not a whole lot of answers. Satyam is at crossroads would be an understatement. Yesterday’s news conference did not answer any questions. In fact it raised more questions.

Given this uncertainty I have put together 5 possible options before Satyam. These are the 5 option for Satyam as a company to survive :

1. The current management continues to work with the clients. Shed at least 20% of the work force and arrange for funds to keep the company running for the next 2 quarters. This would help them to get their house in order until the actual revenues flow in. However, it is very difficult to bring back the trust with the current management. Given the global scenario work is hard to come by.
2. Someone decides to buy the company and kicks the current management out, changes the name and revamps the whole system. This would mean job cuts may be close to 20%. But the company would be a much leaner and better equipped. This option seems too idealistic right now. Most of the suitors backed out after the revelations from the chairman. L&T, which I thought would be daring to go has also backed out. The increase in stake of L&T is only a strategic portfolio investment. Who will buy Satyam? That still is the big question.
3. Indian or the Andhra Pradesh government takes over. This would mean nationalization of an IT company. Government might get its own share of IT profits but this option is very remote. This is a election year and the Congress would not take such a risk. As a taxpayer I would not want my money to pay for Ramalinga Raju’s mistakes. This option has been considered already and ruled out already. You never know.
4. Split the company into verticals : Splitting the company into 4 or 5 verticals looks like the better option. The splitting can be done by the current management or any strategic investor. Once the company is split many IT companies will be willing to buy them. It will not have the additional baggage of Satyam.
5. Go bankrupt. Bankruptcy is a fancy word in India. Going bankrupt is not that easy. There will be a lot of political pressure. More than 50000 families are at stake and if someone knows India well, they can guess that there will be a mass protest. Just look at what is happening at the oil PSU’s.

To me the option 4 is the most likely and option 5 is the least likely. What we are seeing right now is option 1. Option 1 will not work very far because of the lack of trust in the current management.

Bankruptcy is a difficult choice. Looking at the letter we still think that the company is solvent. It might not pay salaries to employees for the month of February. Salary cost alone for the employees is 500 crores (this is a little too high and needs another look). Company is left with some 300 crores of cash which can hardly pay the employees. This means immediate job cuts in big numbers.

Satyam is not the only IT company which was involved in such a scandal. There were companies earlier also which resorted to fudging books, insider trading and diversifying into does-not-make-sense sectors. Companies like DSQ Software, Pentamedia and Pentasoft has collapsed in the past. The size of the company and the quantum of the scam is not comparable to that of Satyam though.

If you think there are some more options available please add your comments.

*Image credit : rpeschetz via flickr