Shareholder activism

November 10, 2007

In the light of booming private equity/venture capital investments in companies in India, the first (and in some cases, most bastardised) term that goes around in the markets is corporate governance. What level of corporate governance your company follows? How transparent is your set up? etc etc.
With increased inflow of PE money, it is but natural that shareholders stand up and question the managements on every decision they take. Sadly, though, in India shareholders (barring some financial institutions) have to take the management (and its follies) without any questioning.
Please read the following, where a PE investor is tearing apart a management. First, I do NOT have any information about this company or its management. This letter which the investor has written is worth the read:

Here it goes:

To the Board of Directors of PeopleSupport, Inc.:

The Galleon Group is a $7 billion fund. As you are aware, we are currently the largest shareholder of PeopleSupport, holding approximately 24% of its outstanding shares. We have invested more than $70 million in PeopleSupport because we believe in its fundamental value proposition and the strength of its primary focus.
Accordingly, we would like to remind you that PeopleSupport is a provider of offshore business outsourcing services and not a real estate investment vehicle. In the last two months Mr. Rosenzweig has informed shareholders that the company intends to embark upon an ambitious real estate development project in the Philippines. Mr. Rosenzweig informed us that the estimated cost of this real estate project will be approximately US$80 to $100 million. This number is in excess of 50 percent of PeopleSupport’s current cash position and represents more than 25 percent of the company’s current market capitalization. This is an extraordinarily risky bet for a company of PeopleSupport’s size and could jeopardize the entire company.
We did not invest in PeopleSupport seeking exposure to the Asian real estate market. If PeopleSupport is interested in mitigating its real estate exposure in the Philippines in light of investments it has already completed in that country, we believe the appropriate course of action would be to engage an experienced real estate investor to develop a property in which PeopleSupport would be a key tenant. The current strategy to have PeopleSupport develop this property is misguided and will in all likelihood achieve nothing other than the destruction of shareholder value. Indeed, the strategy has been poorly received by the market as the decline in PeopleSupport’s stock price that followed the announcement of this strategy clearly indicates.
We ask that the Board immediately issue a statement clearly and unequivocally rescinding the recently announced real estate strategy.
We have been investing in PeopleSupport since the fourth quarter of 2004. Between May and August of 2007, we increased our position from 5.4% to 23.9%. This was a reflection of our confidence in the company’s business prospects and a belief that the company’s upside potential was not fairly reflected in the market value of the PeopleSupport stock. Naturally, we expected that our ongoing investment support of the company would have been welcomed by management and the Board. Instead, the Board chose to implement a poison pill plan on August 27, 2007. Not only was this decision counter-intuitive and punitive to PeopleSupport’s largest investors, it is astonishing in the current regulatory environment. While institutional investors, regulatory authorities and the courts are increasing their scrutiny of corporate governance, the Board has opted to implement a corporate strategy universally recognized for its effect of entrenching existing management at the expense of shareholders. As of today, management and the Board have blatantly ignored our private and public demands that the poison pill be removed.
We note that PeopleSupport’s stock is down 50% since January 1, 2007 and down 16% since the company announced the implementation of its poison pill plan on August 27, 2007. By comparison, during the same periods the Nasdaq index has increased by 17% and 16%, respectively. In light of this terrible performance by the company’s management team, we were shocked by your October 17, 2007 announcement that the management team has been “rewarded” with the grant of an additional 435,500 restricted stock unit (“RSU”) awards (including 130,000 RSUs to Mr. Rosenzweig). These RSUs are worth in excess of $4.5 million based on current stock prices. On October 31, 2007 you further announced new compensation packages that included an increase in base salary of approximately 5% for the same executive officers. These raises are on top of raises in excess of 25% for 2007, including a $100,000 raise for Mr. Rosenzweig. In addition, on October 31 you increased their target bonuses and, only two weeks after granting the 435,500 RSUs, you awarded the executive team another 122,500 RSUs and 245,000 stock options. These actions make us further question whether the Board really has the interest of its shareholders at heart.
We continue to believe that the shares of PeopleSupport are undervalued and that you should discontinue the current focus on real estate development and withdraw the poison pill. Further, we insist that the Board regain control of PeopleSupport’s course. The Board must take all appropriate actions to immediately evaluate the Company’s current strategic position and all options available to build and maximize shareholder value. Indeed, we specifically request that the Board communicate to its shareholders in the coming days the specific steps being taken by the Board to fully explore the options available to the company, as well as the steps being taken to refocus PeopleSupport’s corporate strategy away from value-destroying initiatives and towards the realization of value for its shareholders.
We remind the Board of its fiduciary duties to its shareholders and that we will hold each member personally responsible as well as use every means available to us to protect our investment in PeopleSupport.

Sincerely,

Raj Rajaratnam
Galleon Management, L.P.

After reading this letter, I am of the view that in the not so distant future, shareholders will stand up and ask question. Hopefully!

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Bastards!

November 3, 2007

I normally tend not to bring cheap language in a public place, but if you read the following news item which appeared in The Times of India today, you would probably abuse me for using a mild lauguage. Of course, I agree, many such incidents don’t come out in open.

Here it goes for you:

In the early hours of the morning of August 31, Lakshmana Kailash K was asleep in his home in Bangalore. He was woken up by eight policemen from Pune who came knocking on his door and waved the Information Technology Act, 2000, in his sleepy, terrified face. Get dressed, he was told, we are taking you to Pune for having defamed Shivaji.
Lakshmana protested that he didn’t know anyone called Shivaji. The policemen said that they were talking about Chhatrapati Shivaji, and that an insulting picture of him had been uploaded on the internet networking site Orkut. The cyber trail had led them to his computer in Bangalore.
Turning a deaf ear to his protests, the police took him to Pune and put him behind bars. Along the way, the 26-year-old Lakshmana, who works with HCL, learned that what he was being arrested for was a case that had triggered riots in Pune in November 2006. Political parties had forcibly closed cafes and gone on the rampage over the posting of the illustration which had poked fun at Shivaji. New to the ways of cyber crime, the police took over ten months to trace the alleged source.
Google, which owns Orkut, had cooperated with them but the vital IP address (computer number) was provided by the service provider Bharti (Airtel). Bharti said that the IP address belonged to a Lakshmana K who lived in a Bangalore apartment with friends.
His first bail plea was rejected. Finally, on October 20, after spending 50 days with 200 undertrials at Yervada Jail, Lakshmana was released. Sorry, said the police, the IP address given to us was wrong. We are sorry, said Airtel, and “deeply distressed by the severe inconvenience caused to the customer’’.
To add insult to injury, the police released Laskshmana nearly three weeks after they claimed to have picked up the “real culprits’’ on October 3— three Bangalore boys from Koramangala, all in judicial custody. Asked about the earlier arrest, assistant commissioner Netaji Shinde says, “Yes, we made a mistake. So what?’’
Bharti was a little more contrite but made no mention of compensation. “We are in touch with the customer. We have robust internal processes which we review frequently to make them more stringent,’’ said Airtel in a written response to TOI. “We have conducted a thorough investigation of the matter and will take appropriate action.’’
Lakshmana’s ordeal has uncanny resonances of Kafka’s ‘The Trial’, the more so because his name has the same initial K as Kafka’s hapless protagonist. K is arrested one morning before breakfast on a non-charge and is left to battle the state’s mindless might. Lakshmana was charged under Section 295A of the Indian Penal Code for a deliberate and malicious act intended to outrage religious feelings, and Section 67 of the Information Technology Act for publishing ‘lascivious’ material or material that ‘appeals to the prurient interest’.

Whether the person involved is a techie or not, there needs to be a law in place to file defamation cases against Police also. Today, the Police can go scot free saying it was a “mistake” as mentioned by the ACP.

Is this enough?

Rich & richness

November 2, 2007

I had in my earlier posts mentioned how important it is to have lots of money.

Just read an interesting news item in Mumbai Mirror of what the richest Indian gifted his wife:

When it comes to size and price, few can beat Mukesh Ambani. Even if it is just a birthday gift. The world’s newest richest man and Reliance Industries boss has just gifted himself and his wife, who celebrated her birthday on Thursday, a gift that has a gasp-inducing price tag and requires a Wankhede stadium to park — a Rs 242 crore Airbus 319 corporate jet.
The customised monster-of-a-bird, that should have been delivered in April, rolled into Delhi’s Indira Gandhi International airport en route to Mumbai on Thursday morning. This was confirmed by Airbus sources who did not wish to be quoted. A Reliance spokesperson refused to comment.
The Reliance Industries chairman will finally have his office in the sky. After he bought the aircraft, Mukesh got it customised at the Associated Air Centre in Dallas, Texas. It has a state-of-the-art business office and cabin management system for games, music, satellite television and wireless communication. But more interestingly, it has a master bedroom, master lavatory with a range of showers, galleys and a sky bar in the forward lounge complete with mood lighting.
Sources tell us that Mukesh and Neeta celebrated her birthday a night in advance on Wednesday with a very small, very exclusive party at their Mumbai residence. The theme song for the evening was Mera pati Mera Parmeshwar Hai – reported to be one of Neeta’s favourites. And why not? After all the gift he gave her was something any woman would cherish. Using home video footage of Neeta and their children – right from the time the twins were born – he put together a small film that showcased her with the children.
He may have got the idea from Neeta’s gift to him on his 50th birthday earlier this year. Neeta had gifted him a special biopic directed by none other than Rakeysh Omprakash Mehra, the director of Rang De Basanti.
The 40-minute film mapped Mukesh’s life after his father’s death and was shown at the special celebrations organised at Reliance’s Jamnagar factory with workers and special invitees in attendance.
For Neeta’s last birthday, Mukesh had thrown what is still remembered as the party of the year. While Britain’s Crown Prince Andrews was a special invitee, the show stealer was Shah Rukh Khan who had danced the night away.
Next year, Mukesh is probably hoping to give his wife a gift most women can only dream of – a 27-storey mansion. The house is currently under construction at Pedder Road and is expected to be ready by next year.”

Now coming to something which I know of Mrs Ambani. I am told (I have not authenticated this yet) she visits my neighbourhood quite often. Why? To buy high end bathroom fittings from Water Works showroom in Kasturibai Nagar, Adayar.

The source gave me this additional info: she troops into Chennai in the morning, checks into Taj Coromandel. Has lunch, heads to the store, makes her purchases there (or rather orders what she wants) and catches the evening flight back to Mumbai.

Again, the information is NOT AUTHENTICATED.

Well, the next time, she may not need a watch to fly down to Chennai as there is no need to check the flight timings etc etc.

After all : Money is not everything; It is the ONLY thing

RTI! A special tool

November 2, 2007

When the Right to Information Bill was passed and became an Act, I was never sure about the efficacy of the Act itself. For, again, you will have to go through a whole process of writing letters, getting sanctions etc etc. However, it is good that at the end of it all, you will get that critical info, which was denied to you.

At a press conference to announce the MoU between TN Govt and Sanmina, I asked the company officials, the industries secretary for answers on the land issue price etc etc. I was denied answers saying it was sensitive information. Their logic of sensitive goes like this: If we part with the information, then rival states will better it and grab the project.

Can’t understand the psyche of investors and the department. Relief and concessions are necessary, but to a limited extent. Today, TN and India is in a substantially advantageous position to attract investments. Why should investors invest based on what sops they get? Or is TN such a bad location, that you need to sweeten offers to bait investors?

As a citizen, I have a right to know who gets Government land and at what price? Who gets power at what price?

I had then told the Industries Secretary (albeit on a lighter note), that I can demand the info through RTI Act. For which he asked me to take that route.

As it would turn out to be, today an NGO – Corporate Accontability Desk of The Other Media, told a press conference that it now has the orders from the Information Commissioner to inspect the books of the accounts of the Industries Department regarding the 36 SEZ projects in the State. And the department is not co-operating.

Eventually they will have to.

As a journalist, I would be glad to know some critical details, which I hope the NGO passes it on to us forthwith.

Long live RTI……….

P.S: Isn’t it better to have all these information online so that everyone knows who benefits or gets special reliefs for industrial promotion?

We live in a materialistic world. I need money, infact more of it, all the time. That’s the situation I see many. Maybe I am in wrong company.

This is about a friend of mine. She is an NRI whose hubby is with the film world. Very hep young lady she is. Basically, she goes to London for shopping, will you believe it? Well, she can afford. Well that’s not the story that I want to say here.

This morning she called up. She had a peculiar problem. Her servant maid walked away with Rs 50,000 cash. I mean the servant stole that money. This yound lady, (husband away shooting for the next film) with two kids, the elder of which is my son’s age, decided to walk into the police station and lodge a complaint.

Before goinbg to the station, she asked her driver, if he knew anything “more” about the servant maid. The driver on his part said that the servant has threatened to gone all around the locality saying that her madam holds hell a lot of money at home.

This, sent shock waves down my friend’s spine. “What if somebody breaks in, when I am all alone with two kids?”

However she did go to the police station in South Chennai. There, the inspector summoned the servant, who on her part decided to hold on from telling the truth. The inspector sought a couple of days.

In the meantime, this friend of mine, did all the thinking? “What if somebody, walks into my apartment in the dead of the night? Should I antogonise my servant, as she is privy to some confidential information about my house? Should I pursue the complaint, as once Police enters the house, the neighbourhood will start talking all unwanted things?”

She woke up, called her servant and kicked her out of her home and warned her that she should not see her in the neighbourhood. The servant was happy, after she was let off the hook, and promised never to return to the locality, with ofcourse her Rs 50,000 booty.

Then my friend went to police station and wanted to withdraw her complaint. The cop was a smart guy. Smelling business, he told her, “Madam, we have registered a case and some of the details that we have suggests that you have a hell a lot of Black Money. For us to close this case, you need to take care of me. Pay me Rs 15,000 and the case is closed. Else we will pass on this lead to the Income Tax department.”

My friend was shocked beyond wits. She didn’t have a choice. She paid up and closed the case.

This morning, when she called me up, she was sobbing. But, she did admit that she had some amount of cash, which her husband’s friend had handed over a few days back.

The moral is : pay your taxes and hold your head high. On the flip side, if you have unaccounted money, just don’t flash it and catch attention.

After all, honesty or (dis) honesty, the best policy is to shut up.

St(h)ock Markets?

October 28, 2007

I have to say that this mail which I was forwarded was the inspiration to write again.

I have been associated with the stock markets (directly or indirectly) since July 1989. Therefore, I have some amount of understanding of what this damn animal is all about. For some it is greed, for some it is fun, for some it is a fashion statement while for others it is a livelihood.

My friends keep asking me why I don’t invest in stocks. Well the reasons for that in another post. For the lay man who is entering the markets now, without any knowledge of what this place is all about, please read the following:

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs10. The villagers seeing that there were many monkeys around,
went out to the forest and started catching them. The man bought thousands at Rs10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at Rs20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at Rs50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs35 and when the man returns from the city, you can sell it to him for Rs50.”

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant,

Only monkeys everywhere!!!

Welcome to the “Stock” (Shock) Market!!!!!

This is a nutshell what markets are for the man who does not have an idea what it is.

I am back!

October 28, 2007

Hey after a long break, I am back in blogosphere. I have no idea how long I will be here now, but so long I am here will keep updating this space.

Cheers