HCL Tech bids for Axon

The race for UK-based software company Axon has taken a new twist. HCL Technologies (HCLT) has put up a counter bid to beat down Infosys Technologies, which had bid for the company on August 25. The Noida-based HCLT upped the bid by 8.3% to 650 pence per share as against 600 pence per share of Infosys. HCLT bid values Axon at $810.8 million. As against this, Infosys' bid valued the UK company at $753 million).This will be the biggest acquisition in the software technologies space by an Indian company. As HCLT made a higher bid, Infosys will have to revise the offer price to remain in the race. In case Axon's shareholders decide to go with the HCL's offer, Infosys will be paid 1% of the deal amount as inducement. HCLT has already arranged a 400 million pound loan from Standard Chartered Bank for the deal. Rest wil be paid from internal accruals, HCLT CEO Vineet Nayar said.The share price of Axon shot up by 48 pence (7.6%) to 682 pence on the expectation of Infosys revising the bid upward. While it was earlier anticipated that a scheme document for Axon-Infy would be posted to Axon's shareholders on or around September 29, that looks unlikely now. It will now be interesting to see what Axon's board would do as under the August 25 agreement between Axon and Infosys, Axon will not amend its recommendation of the Infosys' acquisition for a period of 60 hours after notifying Infosys Infosys has a cash reserve of over $1 billion, sufficient to fund the acquisition. The LSE-listed Axon has over 2,000 employees at present, including 1,300 in the UK and the US. If Infosys bags the deal, it is slated to give it a major boost in the SAP space. Axon had reported profit before tax of 29.5 million pound and revenues of 204.5 million pound for the year ended December 2007. At the present HCL offer, Axon is valued at 15 times of the pre tax profit. On the other hand, HCLT is quoting at 13.87 times of its post tax profit. Therefore, a merchant banker pointed out that HCLT is offering higher than the price at which its own share is quoting in the market. As against this, Infosys' share is quoting at around 21 times of its post tax profit.