HCL sidelines Infosys in Axon acquisition

After resisiting HCL Technologies' advances for the last two years, British consulting firm Axon Group has agreed to accept a £441 million ($785 million) bid from HCL Technologies, rejecting an earlier offer of £426.1 million ($753.1 million) by Infosys Technologies. HCL offered to buy Axon for 650 pence a share in cash on September 26, topping the Infosys offer of 600 pence. If the deal does go through in HCL's favour, being at a premium of 8 per cent to Infosys bid, then it would be the largest overseas acquisition by an Indian IT company.

India's IT sector is heavily dependent on the US, its largest market, which is at the moment in the midst of the worst financial crisis and many Indian IT companies are now trying to reduce their dependency on the US, by building up their business in Europe and Asia. The acquisition would give to any one of the Indian companies access to the growing market for technology consultancy services in the UK, as well as a large chunk of revenue from Europe.

HCL had said it would take a loan of $735.5 million from international markets at interest rates ranging between 8.5 per cent and 9 per cent per annum and pay the rest in cash for the acquisition. Experts opine that although the deal is expensive and impact the balance sheet of the company in the short term, would benefit greatly in the long run.

Axon provides consultancy services to multinational corporations that have selected SAP as their strategic enterprise platform and HCL has always stated its intention to be a global major in the EAS line of business with its top management saying that the Axon acquisition will place them well in the space. HCL stands to gain Axon's expertise in products developed by SAP AG, the world's biggest maker of business-management software.

Axon was set up in 1994 by Mark Hunter, who will pocket £44 million from any takeover deal. It has about 2,000 employees with offices in Britain, North America, Malaysia and Australia. Its 2007 revenue was £204.5 million pounds ($361 million).

HCL operates in 19 countries, with an expertise in developing software in manufacturing and a fast emergent life sciences business. It got 57.4 per cent of its business from the US market of which two-thirds of the $1.9 billion revenue came from non financial services companies last year.