Infy unveils bid to snap up Axon...

Infosys today announced an all-cash offer to buy UK’s Axon Group for Rs 3,300 crore, or £407 million.

It has offered £6 per share for 67.85 million shares, inclusive of any interim dividend. The offer price is at a 33.1 per cent premium to six months’ average price of £4.51 and 19.4 per cent premium to the closing price of £5.025 on August 22, the last business day prior to the acquisition announcement. The buyout offer has surprised analysts as the country’s second largest software company had recently warned of challenging times with its western clients cutting budgets and delaying business decisions to tackle a slowdown.

According to Infosys CEO Kris Gopalakrishnan, “This strategic combination of our groups will accelerate the realisation of our common aspiration — that of becoming the most respected provider of business transformational services in the global marketplace.”

Axon has offices in the UK, North America, Malaysia and Australia. Its clients include Maruti, Honda, Ford Mercedes and Nissan in the auto segment, GE Cap and Barclays in financial services, Vodafone, BT and Motorola in telecommunications and AstraZeneca, Novartis and GSK in pharmaceuticals.

The board of Axon has recommended the offer. The three founders of the company as well as the key employees, who together hold about 18.1 per cent, have also supported the offer. Financial institutions and the public hold the remaining shares.

According to V. Balakrishnan, chief financial officer, Infosys, “The board as well as the key shareholders (of Axon) are in agreement with the offer. We are hopeful that we will be able to make the other shareholders agreeable to the offer. We will provide them (Axon) with the financial support and global scale and reach.”

The transfer of ownership is expected to be completed by November, while the process will be initiated in September and comprise two rounds of court hearing and shareholder meetings. Balakrishnan said the acquisition would get reflected in Infosys’ fourth-quarter guidance.

Infosys is planning to leverage Axon’s expertise in SAP (systems applications and products). The Indian firm has 2,100 consultants in its SAP division and has more than 100 SAP clients. The business is growing at a compounded annual growth rate of over 65 per cent over the last several years.

With the expected acquisition of Axon, Infosys hopes to gain a greater foothold in Europe and remove its imbalance in earnings vis-à-vis North America. About 62 per cent of its earnings now come from North America and 28 per cent from Europe.

On the other hand, Axon generated a revenue of 61 per cent from Europe, 34 per cent from North America and 5 percent from Asia Pacific.

Analysts have expressed concern over Infosys overvaluing Axon by offering to pay the 33 per cent premium to Axon’s six-month average earnings. Balakrishnan, however, said, “We believe that it is a fair price.”

Source: The Telegraph