HCL Throws The Spanner At Infosys

What was till a few weeks ago a very slim chance has now turned into a big challenge for the people at Infosys. Rival IT Company HCL Technologies announced over the weekend that they too are interested in acquiring UK based company Axon and have made an official bid to buy the company at a price higher than the one offered by Infosys. A few weeks ago we stated that the deal between Infosys and Axon was more or less a done deal but the people at Axon have changed plans midway upon hearing of HCL’s offer.

Infosys had agreed to buy Axon via an all cash offer and had valued the company at 600 pence/share. That meant they would have eventually paid around Seven Hundred and Fifty Five Million Dollars for the company making this the biggest price acquisition in the history of the Indian IT services sector.

At that time the only hindrance to this deal was seen as coming from the shareholders of Axon. No one suspected that HCL or any other Indian company would pursue Axon with the same intent as Infosys have.

A lot of plans change for Infosys with the entry of HCL. If they do decide to pursue Axon then the first step will be to strike back with an acceptable counter bid and one which is higher than their previous offer of 600 pence/share. This is because HCL have made their offer at 650 pence/share.

HCL like Infosys view Axon as a solid company which would be a strategic buy. Axon deals fundamentally with providing SAP services and consultancy. Both companies view this area as one with a huge potential to grow in future. There is also the fact that Axon has a very well established presence over Europe where both HCL and Infosys have looked to expand.

The European factor is more predominant in the case of Infosys. They have been traditionally weak and have been rather late in spreading their wings across Europe. An established Axon base would have helped them grow and increase sales.

HCL have announced that they plan to fund their Axon buy via internal sources and loans.Infosys on the other hand had indicated that they would be funding Axon’s buy through internal revenue. Neither proposal should affect Axon which is in either way assured of cash.

At the end of the day the about turn of Axon to entertain other offers after what we believed was a done deal is a sign that they view the entire affair with a business eye. It really doesn’t matter which company finally acquires Axon as long as Axon themselves get paid well.

Each company would not want to get into a bidding war because such a situation raises the prospect of Axon being way more overvalued. However if such a situation were to occur then the odds definitely favor Infosys which is the bigger, richer company. If Infosys issue a fresh counter bid then it could very well boil down to who exactly blinks first.

No matter who finally ‘wins’ with the buy of Axon, they themselves will be very happy.