UNBELIEVABLE INTERNET ACQUISITION ANNOUNCED
Satyam Infoway announced on 29
November the acquisition of IndiaWorld.com, a India
focused web portal at a staggering US $115 million
or Rs 4,990 million, in cash to be made in two phases.
Initially, Satyam has acquired a 24.5% stake for
US $28 million with the option to acquire the remaining
75.5% stake at US $87 million anytime before 30
September 2000. It has also placed a non-refundable
deposit of US $12 million to exercise this option.
Earnst & Young, the management
consulting firm, provided a "certificate of fairness
of valuation" for the transaction.
What makes the deal hard to stomach
is the fact that IndiaWorld has a capital of Rs
2 million and its Rs 10 share has been valued at
Rs 25,000 ! Rajesh Jain, the Managing Director of
IndiaWorld Communications had reported a pre-tax
profit of Rs 2.5 million on a turnover of Rs 13
million during the last fiscal.
The first phase of the acquisition
would be funded out of the US $75 million American
Depositary Shares (ADS) that Satyam Infoway made
recently. The company is still undecided about the
funding of the second phase.
IndiaWorld.com, runs a family of
portals like khel.com, samachar.com, bawarchi.com,
reported 13.5 million page views per month.
R Ramraj, the CEO, Satyam Infoway
now claims to have 26 million page views per month.
Satyam's market capitalisation shot up US $640 million
in a single trading day following the deal. Satyam’s
ADRs shot up by $34 to $140 in late trading on Nasdaq
the same day.
This deal is undoubtedly the biggest
one related to the Internet business in India. But
the question which still remains is whether it was
worth it? Rs 5,000 million for a company making
a profit of mere Rs 2.5 million sounds quite insane.
