Infosys pulls out of the Axon bid

by Editor 10/13/2008 4:48:00 PM
UK IT consulting firm Axon will fall into the hands of HCL Technologies after Indian IT giant Infosys Technologies had pulled out of the bid.

Infosys had offered a 600 p a share bid in August. The offer was trumped by a 650p a share bid from HCL in September. Industry insiders expected a counter-offer from Infosys, which resulted in Axon shares rising to 685p. Infosys, however, chose not to come out with a bigger offer in the wake of the profits warnings issued by German software company SAP last Monday.

Axon said that a deal with an Indian group would give it the global scale and resources to provide other services, such as outsourcing, that it currently lacks.

Axon shareholders are still scheduled to meet on October 20 to consider the Infosys bid, but the deal is not likely to be approved at this point. Axon will also prepare the scheme document for the HCL bid and distribute it to its shareholders around October 24.

HCL Technologies is not too concerned about the current crisis. The company has already raised a £400-million loan to acquire the British consultancy at a competitive interest rate of 6.5%.

Even though analysts say that the bid is an expensive one in light of the bleak IT spending outlook, HCL sees Axon as "a lot more strategic now than at any other point."

HCL Technologies CEO Vineet Nayar said: "We have already raised the loan and that too in US dollar-Libor rate of 6.5% and not GBP Libor rate, which is much higher at over 7%," explaining that the company has "been working on the deal since March and [we] have evaluated every possible scenario. We have structured it in such a way that the inducement fee, which Axon will pay, very much covers any loss arising out of returning the loan. So, we do not lose anything."

Asked about HCL’s plans if the acquisition is a success, Nayar said: "We have done intense due diligence and the reason we took longer than usual was because we answered question like what happens post acquisition, to IT, culture, people, structure, customers, businesses – to all elements. There are three parts to our strategy. First, it will be very essential for us to demonstrate early wins from cross-leveraging customers. Secondly, it will be essential to go for integration of the two companies; and that is the reason I use the word merger and not acquisition. The third most critical aspect will be the long-term strategic direction, on how you make two plus two to be eight. The first two parts of the strategy are 0 to 12 months steps and the third is 12 to 48 months. So the strategic intent will be the defining success of our future relationship."

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