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Our Bureau

New Delhi, Sept. 26 HCL Technologies on Friday announced a cash offer of 650 pence a share for the UK-based SAP consulting company Axon Group valuing it at £441.1 million, over eight per cent higher than the £407 million offer made by its Bangalore-based rival Infosys Technologies last month.

The proposed acquisition would be funded largely through loans with HCL Technologies tying up £400 million debt, with the rest coming from the cash on its balance sheet.

“Ours is not a response to what is happening in Axon but a considered strategy. HCL had identified eight areas of growth including SAP where it wanted to take a dominant position by 2012. We see Axon as a transformational opportunity for HCL to become a significant player in SAP services space. We started interacting with the management of Axon in July this year and are excited about the high performance and employee-centric culture synergy between the two companies,” HCL Technologies CEO, Mr Vineet Nayar, said addressing a late evening conference minutes after the company signed an ‘inducement fee contract’ with Axon.

HCL’s move – which has been the subject of intense market speculation over the last few days – comes exactly a month after Infosys Technologies announced its intention to buy Axon Group in an all-cash deal to strengthen its own SAP service offerings. Axon reported a profit before tax of £29.5 million on revenue of £204.5 million for the year ended December 2007.

“The acquisition if and when completed, would push the share of enterprise applications services to 30 per cent of our revenue from 11 per cent. In addition, HCL’s services industry offerings will create value for Axon’s diversified blue chip customer base with strong position in UK public sector – a service area relatively insulated from ongoing slowdown,” Mr Nayar said.

Besides this, HCL said its strong SAP presence in the US and Asia “complements” Axon’s position in the UK. “We feel that the discretionary spends will move from custom applications to Enterprise Resource Planning and hence this sector will be positively impacted in the coming months,” he said adding that the acquisition would also provide a significant opportunity to HCL to offer its range of services such as BPO and application development and maintenance portfolio, to Axon’s top clients.

Asked if the HCL was willing to hike its offer in case Infosys made an aggressive counter bid, Mr Nayar said, “At 650 pence a share ours is a compelling offer. We have made an offer…It is a long process and we will have to wait-and-watch to see how things unfold. We expect some decision by the first quarter of 2009.”

He emphasised that HCL’s was not a counter offer over Infosys’ bid. “Ours is a standalone offer and it is our pro-active acquisition strategy. In the SAP area, we had short-listed three companies and Axon topped that list. We approached Axon management in July and took time in due-diligence, in understanding how the two companies will fit… based on that we have made an offer.”

To another query on the process to be followed now to successfully close the deal, Mr Nayar said, “We understand that the UK Takeover Board looks at the highest bidder and the confidence of the shareholders. The same should happen in this case as per the current norms.”

Mr Nayar refuted that the company had waited too long to make its offer.

More Stories on : Software | Mergers & Acquisitions | Infosys Technologies Ltd | HCL Technologies Ltd

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