The Hindu Business Line : Axon bid war may intensify if Infosys offers more

Bangalore/Delhi, Sept. 27 A higher offer by Infosys Technologies for Axon Group Plc could intensify the bid war among the Indian vendors for the European SAP implementation firm.

Delhi-based HCL Technologies offered 650 pence a share for Axon Group on Friday, topping Infosys’ month-old offer of 600 pence a share.

Following HCL’s offer, the Axon share closed 7.6 per cent higher at 682 pence on the London Stock Exchange on Friday. Axon shares have gained 12 per cent over the past month ever since Infosys made the offer.

As part of the implementation agreement with Infosys, the Axon board is likely to meet 60 hours after it notified the company to consider all the proposals it has received. Axon had notified Infosys about the competing proposal from HCL on Friday. It may be recalled that the Axon board had approved the Infosys offer late-August.

Industry observers are divided on Infosys’ next possible move, considering the management’s conservative stance. “I would expect Infosys to go for a higher bid. But if it leads to a bidding war, then Infosys might exit,” Mr Harish H.V., Partner, Grant Thornton, said.

Counter-bidding

When Infosys made the bid last month, it signalled that it cannot sustain growth organically. “I don’t think their stance has changed,” Mr Harish said.

A Mumbai-based analyst said it does not make sense for Infosys to bow out at this point. “While making an offer for a public company, Infosys may have kept headroom for a counter-bid, and therefore prepared for a higher price. It can do that through a combination of cash and stock,” he said.

Infosys had a cash and stock equivalent of $1.8 billion as of end-June, while HCL is leveraging its balance sheet to raise a debt of £400 million to fund the buyout. “I am not too keen on HCL topping a possible Infosys bid, as their balance sheet already appears stretched,” said Mr Rishi Maheshwari, analyst with Centrum Broking.

“We still do not know at what rate HCL has tied up the £400 million debt but my guess would be it is in the 8-10 per cent range, considering that LIBOR at pound is just over 6 per cent,” Mr Maheshwari said. However, Mr Gaurav Dua, Head of Research, Sharekhan Research, said Infosys might not go in for aggressive counter-bidding. “They might not want to overpay for anything as it is not their style of operation. However, if Infosys bids again they would have to pay at least 5 per cent higher than HCL. That makes it almost 10-12 per cent higher than its initial bid,” Mr Dua said.

Uncertain markets

Meanwhile, the rapidly changing market condition could also have an impact, as the US economy crisis deepens. “Infosys would be careful as the market condition has worsened since it made the bid. It may not make a significantly higher bid,” said Mr Dipen Shah, analyst with Kotak Securities.

Another Mumbai-based analyst said HCL needs the deal more than Infosys, as the Delhi-based company’s enterprise solutions presence is marginal. Infosys, on the other hand, has done well organically in that space.

Related Stories:
HCL Tech offers £441 m for UK’s Axon, tops Infosys’ bid
Hold on, Infosys asks Axon shareholders
Offer price for Axon fair: CEO
Infosys buys UK-based Axon group for £407 m

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