Satyam’s fiasco can potentially open a pandora box and SEBI is going to probe all of the M&A deals and buybacks made by Satyam.
The most prominent being Indiaworld – Satyam paid Rs. 499 crores for the company (founded by Rajesh Jain):
In 1999, the group shocked investors when one of its units, Satyam Infoway, paid Rs5bn ($104m) for IndiaWorld, a little-known dotcom company. The price represented a multiple of 50 times IndiaWorld’s annual revenue of Rs10m and 2,000 times its net profit of Rs250,000. [FT]
Official sources said the 2000-01 acquisitions – notably the high-profile purchase of web portal India World Communications from Rajesh Jain for Rs 499 crore – by Satyam Infoway could mark the start of the company siphoning funds overseas under the guise of acquiring companies.
..the purchases coincided with the eight-year period for which the data has been fudged. The inspection report by the Serious Fraud Investigation Office and Sebi will be handed over to the enforcement directorate under the finance ministry to investigate the parking of funds overseas.[BS]
Essentially, the question is on valuation – India World at the time had a capital of Rs 20 lakh, so at Rs 499 crore for the buyout, each Rs 10 share was valued at a staggering Rs 2,500!