HCL Technologies, India’s fifth-largest software company on Friday announced a cash offer of 650 pence a share for the UK-based SAP consulting company Axon Group, thus valuing it at £441.1 million, which is 8.3% higher than the £407mn offer made by its Bangalore-based rival Infosys Technologies last month.
The proposed acquisition would be funded largely through loans, with HCL Tech tying up £400mn debt, with the rest coming from the cash on its balance sheet.
HCL Tech sees Axon as a transformational opportunity to become a significant player in the SAP services space. It has signed an ‘inducement fee contract’ with Axon, which implies that the latter will have to pay HCL 1% of its bid value in case it rejects its offer.
The acquisition, if successful, would push the share of enterprise applications services to 30% of HCL’s revenue from 11% currently. The software major expects some decision by the first quarter of CY2009.
This counter-offer is thus a negative for Infosys, which may have to come up with a higher bid for Axon.
This will push up its acquisition price and delay any EPS-accretion, given that in any case, even at its current offer of 600 pence per share for Axon, we expect just 2% EPS-accretion by FY2010.
We adopt a wait-and-watch stance, given that a due process has to be followed, which could take a few months to fructify.