Subba’s Serendipitous moments

September 29, 2008

The HCL bid for Axon

Filed under: Business,Competition — Subbaraman Iyer @ 9:41 pm
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As was reported here, HCL formally launched an acquisition bid for Axon by raising its bid by 8.3% over the Infosys bid. Infosys will now have the opportunity to increase the bid.

It is quite easy for Infosys to enter into the bidding war given that Infosys is sitting on a cash chest of $1.8 billion. HCL is already stretched because it has only $500 million in cash and this acquisition will be funded by raising debt. Given this debt funding, HCL’s net income will be diluted considerably. In fact, with all the offshoring advantage HCL  has, it is valued at about 12 times EBITDA. It is no wonder that HCL shares plunged by about 12% in a market which was already in a downward trend. Further, Morgan Stanley downgraded HCL from overweight to underweight keeping in view the acquisition risk.

Given that Infosys original offer was itself valuing Axon at 24 times EBITDA, this increased bid will make it even higher for a SAP consulting house. Despite the advantages of being in Europe and some of the intrinsic strengths of Axon, I think this may turn out to be an expensive buy for the eventual buyer — be it Infosys or HCL.

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September 9, 2008

HCL counters Infosys bid

Filed under: Business,Competition,India,Strategy — Subbaraman Iyer @ 6:29 pm
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I didn’t expect a bidding war over Axon.  I thought that it was a done deal. In my opinion, Infosys is already paying a big premium for Axon. Now, the Times of India reports that HCL Technologies is offering a 15% over and above the Infosys bid.

Between the two companies, Infosys at least has a better strategic fit and based on limited information that I know both Infosys and Axon have similar values. HCL Technologies may badly need this acquisition to bolster their presence in the SAP space, but given their management style, it is more likely that some cultural clashes could happen. Result — some of the star employees of Axon could just quit.

Will Infosys get into a bidding war?

It would be interesting to see who gets this expensive prize as Axon’s shareholders could still vote for Infosys bid, the higher price of HCL Technologies notwithstanding.

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