Internet Mania arrives on Indian shores-Economic Times
Satyam Info strikes Rs 500-cr deal to buy portal IndiaWorld
Our Mumbai Bureau
29 NOVEMBER
THE Internet valuation mania has finally washed up in India. A company with a turnover of Rs 1.3 crore and a profit of Rs 25 lakh has just been bought for - listen to this - a jaw-dropping Rs 499 crore. Internet services provider Satyam Infoway Ltd today struck India Inc's biggest Internet transaction. The Nasdaq-listed company is acquiring IndiaWorld, a Mumbai-based portal company, for $115m in a unique, two-stage, cash-only deal. And, to add that extra seasoning to the sale, part of the deal has been structured in the form of an options contract. Satyam Infoway, a subsidiary of Hyderabad-based Satyam Computer Services, is not buying out IndiaWorld in one stroke. In Phase I, which has already happened, Satyam has paid Rs 122.2 crore or $28m in cash to acquire 24.5 per cent of IndiaWorld.
Satyam also plans to acquire the balance 75.5 per cent but wants to do it only next year. Enter the options choice. Satyam has acquired an option to purchase the remaining shares any time before June 30, 2000, for $87m or Rs 376.5 crore. As part of its commitment to the contract, Satyam has already paid a non-refundable deposit of $12m or Rs 51.3 crore which will be adjusted against the final price when it exercises the option.
Satyam can extend the deadline by three months up to September 30, 2000, after which Rajesh Jain, managing director of IndiaWorld, is free to sell the 75.5 per cent to anybody else. And, keep the deposit as well. The entire transaction is a cash-only deal and Rajesh Jain will not receive any stock options or any other commercial paper.Armed with a $85m war chest, built through its recent issue of American Depository Shares (ADS), Satyam Infoway will use the proceeds to fund the first instalment.
For US GAAP purposes, the initial purchase of shares will be accounted for under the equity method of accounting. Said R Ramraj, CEO of the Hyderabad-based Satyam Infoway: "Upon completion of the transaction, the acquisition will be treated as a purchase." Which means: till the completion of the entire deal, Phase I will be termed as an investment and only later will it be treated as a purchase.
Explaining the rationale behind the deal, R Ramraj said: "IndiaWorld, with its dominant audience overseas, would provide the perfect fit to make SatyamOnline the portal of choice for India."
Satyam Infoway shares were quoted at $107.5 in Monday's morning trade on Nasdaq, up $2.00 against Friday's closing. The Satyam Computer scrip too found fancy on the Bombay Stock Exchange. The scrip opened at Rs 1,920 to touch an intra-day high of Rs 2,015 and finally rested at Rs 1,920 per share.
The Satyam Infoway-IndiaWorld deal sets a benchmark for future Internet deals in India. What adds more megahertz to the deal is the valuation achieved by IndiaWorld. Formed in March 1995, IndiaWorld has a turnover of only Rs 1.3 crore and a profit before tax of Rs 25 lakh.
This beats even some of the wildest global deals. By conventional standards, this valuation turns corporate finance theories on its head. But it just shows one thing ? that the Net is the final frontier and that even Indian Net companies have embarked on that trail. Such deals are not uncommon in the US.
For instance, in an all stock deal, Microsoft had paid $400m to acquire Sabeer Bhatia?s Hotmail.com.
Similarly, Amazon.com paid $240m in stock to the five co-founders of Junglee.com. Excite@Home paid $780m in cash and stock for bluemountain.com, a greeting card site.
International management consultants Ernst & Young undertook the valuation and the basis was the number of page views IndiaWorld managed to generate on a monthly basis. The valuation method took into account the fact that IndiaWorld generated 13m page views per month. Said Mr Jain: "IndiaWorld has secured a unique position with overseas Indians."
The deal allows Satyam Infoway to not only gain access to popular websites such as www.samachar.com, bawarchi.com , khoj.com and khel.com , but also grab crucial eyeballs within the NRI community, particularly in the US.
This also makes Satyam Infoway a complete Internet player, as it can now offer access, portals, web hosting and development and, in the future, e-commerce services.
However, Satyam Infoway, which has 1 lakh retail subscribers and 300 corporate subscribers, will also have to work out details of financing the entire deal. Since the deal is cash-only, Satyam will need to figure out a way to raise the balance Rs 325.2 crore for exercising its options contract.
Of the $85m ADS-funded war chest, Satyam Infoway will be paying $40m to IndiaWorld, which includes both the first phase and non-refundable deposit.
But Satyam might require the balance to fund its planned capex. Satyam is investing in expanding its network. Currently, the company offers its Internet services in 30 cities which should go up to 40 by March next year. The ISP also has plans to install 10 international gateways.
In addition, according to the ISP policy, Satyam Computer Services cannot let its holding in Satyam Infoway slip below 51 per cent. Its stake is currently around 60 per cent. As a result, Satyam Infoway may have to opt for a mix of equity and debt.
What makes the situation even more heady is the fact that Satyam might need to go on acquiring some more Net companies to maintain its market cap of over a $1bn. This will require some nifty cash management. economictimes.com |
