Infosys’ offshore abilities will help services delivery

Infosys’ offshore abilities will help services delivery
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First Published: Tue, Aug 26 2008. 11 36 PM IST

Fair deal: CEO Stephen Cardell expects Axon key management to stay.
Fair deal: CEO Stephen Cardell expects Axon key management to stay.
Updated: Wed, Aug 27 2008. 09 49 AM IST
Bangalore: India’s second largest software exporter Infosys Technologies Ltd has made a £407 million (around Rs3,300 crore) all-cash offer to acquire UK-based Axon Group Plc., which offers services to customers using SAP AG’s business software. Infosys’ offer for Axon marks the largest takeover bid by an Indian information technology firm. Shares of Axon rose 21% on Tuesday and Reuters reported from London that analysts expected them to rise further.
Fair deal: CEO Stephen Cardell expects Axon key management to stay.
Axon Group CEO Stephen Cardell told Reuters the 600 pence a share offer from Infosys was “a good price”, but acknowledged some shareholders may be disappointed after the shares hit a high of 955 pence earlier in the year. The company board, he added, had a duty to consider any higher offer.
Axon, listed on the London Stock Exchange, on Tuesday reported a 28% rise in revenue to £123.9 million for the half-year ended June; adjusted operating profit rose 23% to £20.2 million. In a phone interview with Mint, Stephen Cardell spoke about the rationale behind the company’s board accepting the offer. Edited excerpts:
How does this deal make sense for Axon and its shareholders?
In terms of the business Axon’s vision statement is to be the world No.1 SAP firm. We have been in the business for the last 13 years. We are turning $500 million (Rs2,205 crore) in that market and joining forces with Infosys allows us to rapidly accelerate towards that objective. It gives us additional geographic coverage, gives us more scale and a board of proposition. I think, for all of those reasons this transaction makes a lot of sense from a business point of view.
From a shareholder point of view we looked at the offer price. It was a 33% premium over the last six-month share price and it was all cash. We felt that it was a fair deal for Axon shareholders and that’s why the management is supportive of this deal.
You have some of the biggest names among Fortune 500 companies in your client list. What more would Infosys bring to your table?
Some of these projects are extremely large and therefore the ability to deploy large number of persons is necessary if we have to compete against Accenture and IBM for that work. Infosys has a very well-developed offshore delivery capability and that would be very helpful in terms of delivering those programmes.
How big are you in SAP implementation in terms of market share?
All of our revenues are SAP—about $500 million. If you look at Gartner’s numbers the total market for SAP services is about $26 billion.
What’s the road map for Axon management?
The expectation is that key Axon management will remain and play a key role in growing the organization.
You had net margins of 10% for 2007. Is that normal for this business?
If you compare us to our peer group companies such as Accenture, Cap Gemini, IBM ...you see that we are favourably placed against them in terms of operating profits. If you compare with the Indian offshore players, the Indian players have always been in the high-margin business because of their business model. Secondly, if you look at the after-tax profits, you need to look at a very different tax regime between Europe and India.
How do you see your people mix changing?
We have 2,000 people today—roughly one-third in America, Europe and Asia-Pacific each. What you see going forward is continuing growth in European and American markets and significant scaling of offshore (resources).
Do you see any changes to the demand environment, considering the slowdown in the US?
Certainly, there are macro factors in the market, particularly in sectors such as financial services and retail sector or construction, that indicate a slowdown. If you look at the numbers that we announced this morning, we continue to make progress.
Malcom Locke of Reuters contributed to this story.
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First Published: Tue, Aug 26 2008. 11 36 PM IST