HCL’s Axon bid costly in the short run: analysts | business | Hindustan Times
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HCL’s Axon bid costly in the short run: analysts

Stock markets have not cheering HCL Technologies’ aggressive bid to acquire UK-based information technology firm Axon with the company’s share price tumbling by 8 per cent.

business Updated: Sep 29, 2008 23:17 IST
Sandeep Singh

Stock markets have not cheering HCL Technologies’ aggressive bid to acquire UK-based information technology firm Axon with the company’s share price tumbling by 8 per cent on Monday.

In order to fund the deal that would cost around $736 million to HCL, analysts said the company would have to raise debt of around $400 million.

“HCL would have to raise debt from international markets at high rates ranging between 8.5 per cent and 9 per cent per annum,” said Gaurav Dua, head of research at brokerage firm Sharekhan. “The interest cost in addition to the interest that the company would forego on its cash component would be higher than the profits from Axon.”

HCL last week offered to buy Axon for around 441.1 million pounds ($810.8 million or Rs 3,720 crore). This betters Infosys’ 400 million pound ( $736 million or Rs 3,380 crore) bid made last month. HCL that earns around 29 per cent of its revenues from Europe has offered to pay 650 pence in cash for each Axon share and is 8.3 per cent higher than Infosys’ 600 pence per share bid made on August 25. Axon provides software application protocol services that seamlessly optimises and integrates information flow across all business processes of an organisation.

Analysts said deal could prove to be costlier for HCL in the short-term, but would reap rich dividends in four to five years. “It is a long term call for the company,” said Harit Shah, IT analyst at Angel Broking.