AXON DEAL MORE STRATEGIC NOW: HCL

Shelley Singh & Deepshikha Monga, New Delhi, October 13, 2008
The Economic Times

The current financial crisis and a bleak outlook for IT spending does not seem to bother HCL Technologies. The country’s fifth largest IT services player has already raised £400-million loan for UK-based consultancy Axon’s acquisition at a competitive interest rate of 6.5%. Despite analysts saying that HCL’s bid is expensive in face of the current slowdown, the company sees Axon as `a lot more strategic now than at any other point’.

“We have already raised the loan and that too in US dollar-Libor rate of 6.5% and not GBP Libor rate, which is much higher at over 7%,” said HCL Technologies CEO Vineet Nayar.

Infosys Technologies, which had first made a £407-million bid for Axon on August 25, said on Friday that won’t raise its offer price and thus moved out of a possible bidding war. But what if a third bidder enters the fray and spoils the party for HCL? “We have been working on the deal since March and have evaluated every possible scenario. We have structured it in such a way that the inducement fee, which Axon will pay, very much covers any loss arising out of returning the loan. So, we do not lose anything,” Nayar said.

HCL’s bid was considered expensive when it was announced and the worsening business environment has led to further skepticism. Recently, SAP, the world’s largest business software firm, announced an abrupt decline in sales during the last two weeks of September as customers cut back spending. Sales of the bellwether firm are a good indicator of IT spending. Axon is one of the major SAP consulting players with about 2,000 consultants. According to a CLSA Research report, given the challenging business environment, Axon’s growth will taper down from a CAGR of over 30% seen over the last three years.