'Shut'yam

The investor community and markets been caught napping. The facts on Satyam have been documented and are available. Enough has been spoken on the lack of corporate governance and level of fraud. I am going to focus on what I perceive as the way forward and possible outcomes.

Scenario 1: Company Liquidates
The current situation for Satyam is extremely delicate. If we examine the last quarter numbers (as stated in Raju's letter), the revenues stand at Rs 2112cr and operating margins at just Rs 61cr. This effectively means Satyam is losing money at the net level. For a company with no cash (cash balances stated are not present) it may not be able to meet its financial commitments and fixed expenses. If these unfortunate events materialize, and no other means of financing are available to salvage the business, the company may be forced to down its shutters.
Probability: Low

Scenario 2: Satyam gets Acquired
You may wonder why anyone would want to board a sinking ship. The pragmatic answer is, only if he can repair the holes. Satyam has large holes in its accounts. Rs 5000cr of non existing cash, shrinking margins (3%) and potential client churn.
In an industry which has operating margins around 30%, Satyam's 3% looks abysmal. It reflects poor pricing and ineffective cost structures.
If a potential acquirer were to value Satyam. He would be looking at skilled employees and large number of clients. It would be fair to assume most clients would already be looking for alternatives. If Satyam manages to salvage 50-60% of its clients it would be an achievement. For a mid size I.T companies with significant cash balance, Satyam may prove to be an attractive proposition. This will be viable if the acquirer can manage to reduce operating costs and retain clients.
Probability: High

Scenario 3: Replacement of Management
Though an interim CEO has been appointed, there is a chance that other stakeholders (government, shareholders or regulators) may force a change in the management. The new management will have to inspire confidence amongst its employees and clients. Getting the business back to shape will be a long drawn process with lots of tough decisions.
Probability: Moderate