Satyam board names new CEO, secures $130M in funding

Insider will run outsourcer, despite previous desire for 'new blood' after accounting scandal

The board of directors at scandal-wracked Satyam Computer Services Ltd. today named a new CEO to run the India-based offshore outsourcing vendor — choosing a longtime Satyam executive, despite previous statements that it was looking to hire someone from outside the company.

The board, which was appointed by the Indian government to oversee Satyam after the company admitted to a fraudulent accounting scheme last month, also said that it has raised about $130 million in working capital from banks to ease a liquidity crunch at Satyam.

A.S. Murty, who has worked at Satyam for the past 15 years, was tapped to be the company's new CEO. The board had indicated earlier that it wanted to bring in "fresh blood" to run the company, but it said in a statement today that it had changed its mind. "In our interactions over the past few weeks, we are convinced that Satyam needs an internal leader to steer it at this critical juncture," the board said.

However, Murty's appointment may only be temporary, until the company is sold to a new owner, according to people close to the situation at Satyam. Last week, the board said that it might consider a sale of Satyam to a strategic investor.

The board likely would have chosen a more well-known individual as CEO if it intended for the company to continue operating as it is now, said an industry analyst who asked not to be identified.

To retain customers, Satyam will have to address concerns about the company's ability to continue delivering IT services to its clients in the wake of the accounting scandal. Satyam has already lost at least one large customer: It confirmed two weeks ago that State Farm Insurance Co. had terminated its contract with the outsourcer.

Earlier this week, Satyam paid the salaries of its workers for January from money it had accrued, for now ending speculation that the company might be unable to make its payroll.

B. Ramalinga Raju, Satyam's co-founder, resigned as the company's chairman in January after disclosing that the company had inflated its profits for several years. His brother, B. Rama Raju, also resigned from his position as managing director, and Satyam's chief financial officer stepped down as well.

Satyam initially named a member of its previous board of directors to be CEO on an interim basis. But the government-appointed board reversed that decision and began a CEO search that culminated in today's announcement.

While the board chose an insider to run Satyam, it also brought in two people from outside the company to act as "special advisers" to Murty and the board itself. Homi Khusrokhan, a retired managing director at Tata Chemicals Ltd. in Mumbai, India, and Partho Datta, a chartered accountant with more than 33 years of corporate experience, will assist Satyam in the management and finance areas, respectively.

Rival outsourcing vendors, such as HCL Technologies Ltd. and iGate Corp., have shown interest in investing in Satyam. But analysts said that the process of finding new investors or a buyer could be delayed because the extent of the accounting fraud won't be known until Satyam completes a restatement of its financial results.

In addition, Satyam faces two class-action lawsuits in the U.S. The company's board said today that it has hired New York-based law firm Wachtell, Lipton, Rosen & Katz to represent Satyam in those cases.

Copyright © 2009 IDG Communications, Inc.

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