Infy may top HCL bid with 720p offer

Infosys is likely to make a one-time move to match or surpass HCL’s offer to acquire London-headquartered SAP consulting firm Axon, but would guard itself from entering into an expensive bidding war, sources said.

Axon board, which received HCL’s 650 pence counter offer amounting to $811 mn on Friday, is expected to formally discuss the development after providing Infosys the mandatory 60-hour window to react.

Infosys, which made 600 pence offer to buy Axon for $753 mn last month, is expected to disclose its plan on Monday.

Banking sources who have tracked Infosys believe the Bangalore-based tech giant could make a conditional offer—either matching or going up to 710-720 pence—after getting an assurance from Axon that it would consider another revised bid by HCL, or any other player, only if it comes at 750-755 pence or more.

However, it remains to be seen if HCL and Infosys opt for a bidding war. Some bankers argued that Infosys’ aversion for expensive acquisitions may take it out of fray beyond 700-720 pence. However, anticipating an escalation in the bidding war, LSE-listed Axon saw its stock price gallop on Friday to close at 682 pence.

Banking sources said HCL’s counter offer with a narrow 8.3% premium was a strategy banking on Infy’s lack of appetite for an aggressive bidding war. “Why pay 15% premium straight away if you can get Infy out with 8.3%,” said one banker.

But then, as a sectoral analyst warned, Infosys may turn the heat on HCL game plan as its legendary organic growth story looks increasingly uncertain in the midst of economic slowdown. Analysts said it was interesting why Indian companies were now aggressively chasing Axon, which has been an acquisition target for around two years.

Infy’s original offer—valued at 24 times Axon’s EBITDA—was already perceived to be rich. If it makes revised offer, Infosys will lace the unfolding discussions with softer arguments like the benefits of aligning with a stronger company that has an acclaimed work culture. There is also a likelihood that given the legal concurrence given by the Axon management to Infosys, the latter might leverage it to rein in other shareholders.

But if it’s hard numbers doing the talk, as it often happens with shareholders of UK-listed companies, Infy is widely expected to opt out. The report last month on Infosys’ announcement of its intention of acquire Axon said that a counter-bid was likely. It is understood that Infosys had factored in the possibility that it may have to hike its offer by 15-20%.

An eventual HCL offer could be $1 bn in payout forcing the company to raise significant debt from StanChart and HSBC that have offered a line of credit. HCL has over $500 mn sitting on books, but is unlikely to plough all of that into the acquisition play. Infy, on other hand, has a reserve of over $1.8 bn and has been traditionally wary of expensive inorganic growth strategies.

The Axon acquisition tale may take many more twists as there is speculation that besides the Indian players, there are also European and Japanese entities looking into company very keenly. It was reported earlier this month that Japanese major Fujitsu may also enter the fray.