Axon prefers HCL; Infosys to wait and watch

Axon prefers HCL; Infosys to wait and watch

Bangalore / New Delhi: Infosys Technologies Ltd is unlikely to react before 10 October to smaller rival HCL Technologies Ltd’s counter-bid for UK-based Axon Group Plc. that was endorsed on Thursday by the British firm—superseding an endorsement in favour of Infosys’ earlier and lower bid.

Axon’s recommendation that its shareholders positively consider a bid from HCL came almost a week after the Indian company announced its counter-bid of £441.1 million, or Rs3,701 crore, an 8.3% premium to the £407 million, or Rs3,415 crore, cash offer made by Infosys on 25 August.

Axon and HCL have enjoyed a long-standing relationship, the British firm said in a statement, adding that it voted for HCL after the 60-hour notice of a counter offer to Infosys lapsed on Monday.

“We always said that we are looking at all options. We will decide when the board meets," said S. Gopalakrishnan, chief executive officer of Infosys. The Infosys board will meet on 10 October to discuss the company’s results for the second quarter. An Infosys spokeswoman declined comment on the “hard irrevocables" that Infosys had said the promoters of Axon had pledged along with their 18.1% stake in the company.

Indian IT service firms are looking at acquisitions to add skills and expand share in markets such as Europe. HCL expects revenue from enterprise application services or deploying business software of firms such as SAP AG and Oracle Corp. to increase to 30%, once the Axon deal is over. It earned 11% of its revenue of Rs7,639.4 crore from such services for the year to June. HCL follows the July-June financial calendar.

“HCL and Axon have complementary verticals in defensive sectors not largely impacted by external environments—this will help us grow into new verticals," said Vineet Nayar, chief executive of HCL at a press conference on 26 September.

“I am not saying that we are increasing the offer. If the board feels it makes sense, we will decide," Gopalakrishnan said on Thursday.

“Infosys could go for another bid," said Apurva Purohit, equity analyst with Religare Securities Ltd, a Mumbai brokerage, and expected the firm to increase the price to 660-670 pence. Infosys’ initial offer was 600 pence and HCL’s, 650 pence.

Purohit, however, doesn’t expect Infosys to “get into a prolonged bidding war".

That’s just what it might end up with, said another analyst, because HCL is unlikely to give up.

“If Infosys makes a counter bid, HCL will also increase the bid. They have tied up with loans and have good cash; they have good cushion," said Harit Shah, equity analyst for Mumbai-based Angel Broking Ltd.

In response to a question on when HCL would start the process of rolling out its offer to Axon’s shareholders, a spokeswoman for the company said: “We are not under any specific time crunch, and we are trying to get clarity on what needs to be done and when".

Axon cancelled an extraordinary general meeting of its shareholders scheduled for 20 October to vote on the Infosys offer and said it would set a new date to consider the HCL proposal, a spokesman at the UK firm’s external communications agency said.

Shares of Axon on the London Stock Exchange were trading down 0.74% at 670.50 pence each, and the American depository receipts of Infosys were trading down 2.25% at $31.67 on the Nasdaq exchange at 9pm India time.

Markets in India were closed on Thursday on account of Gandhi Jayanti.