With Infy mum, Axon board backs HCL bid

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The board of directors at SAP consulting major Axon Plc of the UK on Thursday recommended the £441-million counter offer for the company by HCL Technologies, dropping an earlier preference for the £407-million bid by Infosys Technologies.

The board had earlier decided to not vary or amend its recommendation of the Infosys offer for 60 hours in the event of another proposal. “The 60-hour period… has now elapsed,” a statement issued by Axon said, adding: “Axon and HCL have enjoyed a long-standing relationship. The board is pleased that HCL has recognised the quality of the Axon business and has announced its intention to make an offer.”

Speaking to FE, Infosys CEO S Gopalakrishnan said, as his company had not sweetened its offer, the Axon board recommended HCL’s bid. But, he added, “As earlier stated, we are considering all options.” HCL officials were unavailable for comment. Ever since HCL made a counter offer last Friday, industry watchers expected Infosys to up the ante. “Our reading is that Infosys will not opt for a bidding war with HCL. However, they will offer a counter bid after careful consideration, because they need the acquisition very badly,” said Vinu B Kartha, analyst with research company Tholons.

In an earlier comment, Gopalakrishnan had said Infosys would leverage Axon’s SAP business and strengths in Europe. Infosys wants to reset the ratio of its market presence in the US, Europe and Asia from the current 60:30:10 to 40:40:20. HCL has similar plans for Axon. Both companies have most of their revenues coming from the US, which analysts see heading into recession. According to Sabyasachi Satpathy, a senior director at research & consulting company neoIT, “Unlike the hub-and-spoke model adopted by Indian service players (where India is seen as a hub to other delivery locations), the deal will enable HCL have an enterprise application solutions hub in Europe.” The Axon deal will give HCL access to over 2,000 consultants in the SAP space, he added.

The SAP market, which consists of licences and service costs, is particularly lucrative. For every dollar spent on licences, close to $1.5-2 is spent on implementation and maintenance. The global SAP market is estimated at around $220 billion. Of this, outsourced services were worth $35 billion, said Kartha. The share of Indian players in the global SAP market is very small.