SUNNY SIDE UP IN TARO WAR

Israeli Court Tells Taro Owners To Sell Out

IN A victorious move for Sun Pharma, the Israeli district court, in a ruling on Tuesday, ordered the promoters of Taro to sell their stake in the company for $7.75 per share. The Tel Aviv Court also rejected Taro’s contention that Sun Pharma should have conducted a special tender offer under Israeli law. Sun Pharma is now in a position to complete the tender offer following which all conditions for the option agreement to acquire the shares held by the controlling shareholders of Taro will be satisfied and the controlling shareholders will have to deliver their shares.

Judge Michal Agmon-Gonen J of the Tel-Aviv district court ruled that it was disingenuous for Taro’s directors to claim now, over a year after they approved the transaction, that a special tender offer was required. The court stated that the directors should have studied the agreements prior to their being signed, and should have confirmed then that they were in the company’s best interest. The court stated that the directors cannot claim now that they suddenly decided a special tender offer is necessary.

In a statement issued by the company, Sun Pharma chairman and managing director Dilip Shanghvi said: “It is clear, based on the ruling, that the lawsuit by Taro’s independent directors was part of a calculated effort by (Taro chairman) Barry Levitt to avoid living up to his obligations under the option agreement. It is time for Mr Levitt and his family to live up to the contract and do what is required of them under the option agreement.”

After the deal goes through, Sun Pharma will raise its stake from 36% to 48% while its voting rights will increase to over 60%. Option to appeal open
TARO founders and Templeton Asset Management have the option to appeal against this decision in the Supreme Court in Israel. Whether they decide to exercise that option is not clear. An official query to Mark Mobius, head of Templeton Asset Management, however, received no reply

The two companies (Taro and Sun Pharma) have been at loggerheads since May this year, after Taro cancelled the merger agreement signed between then a year ago.

Taro’s main bone of contention was that the price offered for Taro’s shares was ‘too low’. Taro had filed a case in the Israeli court to prevent Sun from taking it over at such an under-valued price. In retaliation, Sun filed a case in the Supreme Court of New York against Taro for breaking their agreement. It also commenced a tender offer for all outstanding shares of Taro which expires on September 2.

Earlier, international reports quoted Taro chairman Mr Levitt stating that there are a number of companies that are willing to buy Sun’s share in Taro for $10.25 a share and even more. “Sun has to be willing to sell.” he said. This question, however, does not arise now as Sun will have a majority stake in Taro. The court also stated that the directors, who are also shareholders, benefited from Sun’s investment, which saved Taro from collapse.

Sun has announced that its tender offer will now close a day later on September 3. Sun Pharma’s stock closed at Rs 1,481.65, down 0.53% from its previous day close.

After Tata’s takeover of Corus, Infosys gobbles up UK-based Axon for a staggering Rs 3,300 crore, India’s largest tech buy

INFOSYS, a declared suitor in the market for a long time now, has finally found a match. The company is set to acquire UK-based Axon Group, a SAP consulting services company listed on the London Stock Exchange, for about $753 million (£407.1 million) in an all-cash deal. This will be the biggest overseas buyout by an Indian IT company, eclipsing cross-town rival Wipro’s $600-million acquisition of Infocrossing last year.

Commenting on the Rs 3,237-crore acquisition, Infosys chief executive S Gopalakrishnan said, “We will leverage the capability (Axon), and with our global reach, this will help in large deals participation.”

Axon, with around 2,000 employees, provides consultancy services to MNCs with SAP as their strategic enterprise platform, and has clients such as BP and Xerox. The transaction comes at a time when India’s top five IT majors have been aggressively chasing crossborder M&A deals , as valuations tumble in the wake of a market slowdown.

Infosys has offered £6 per share, which is a 33.1% premium over Axon’s sixmonth average stock price and almost 19.4% over Friday’s closing price.

Interestingly, the deal also left a section of analysts wondering at the possibility of a counter bid for Axon by any of Infosys’ large competitors.

Infosys is making an all-cash offer to acquire Axon’s 100% shareholding, including an 18.1% promoter stake, in a move to take the company private. The Indian software services giant, with close to $1.8 billion in cash reserves, is hoping to complete the formalities by November 2008. The Infosys scrip closed marginally up at Rs 1,703.05 in a flat Mumbai stock market.

Axon reported revenues of £204.5 million for calendar year 2007 with a net profit of £20 million. It gets around 55% of its revenues from the UK with the remaining spread coming from the US and Asia-Pacific. It also has a delivery centre in Malaysia.

Axon has been looking for a possible suitor over the past one year, and Citigroup is believed to have offered the deal to most A-listers in the Indian tech sector with £350 million as sort of a floor price to talk a deal.

Reacting to the valuation of Axon, Infosys chief financial officer V Balakrishnan said the “pricing is fair”. Axon’s operating margin at 15% is nowhere close to that of Infosys’ 28-31%. But analysts and investment bankers pointed out that bagging an international acquisition target with a 15% operating margin is a rarity.

Add to this the fact that Axon has 15-20% share of the SAP services market in the UK, with a robust client base that includes Motorola, Vodafone, GE Capital and Barclays. It is believed that both Mr Murthy and Nandan Nilekani have been working on sealing a big buy for Infosys in the past 18 months. “This deal has their stamp on it,” says a banker who did not wish to be quoted.

SAP is a growing business segment for Infosys, accounting for 24% of its revenues with a CAGR of 65% over the last three years. Mr Balakrishnan said, “This is the space where we have good growth and there is good demand for SAP services.”
Infosys officials said the company would be able to provide the future guidance only when the deal is concluded. However, they felt there are excellent synergies between Infosys and Axon as the latter did not have the financial muscle, reach or scale to expand its business.

BIG-TICKET ACQUISITION

-This is the second acquisition by Infosys after it bought Expert Information Services for $22.9 m in Australia in December 2003

-This will be the largest acquisition by an Indian IT company, surpassing Wipro's $600-million acquisition of Infocrossing

-The deal with Axon is expected to be completed by Nov 2008 Infosys will pay a 33.1% premium to the six-month average stock price of Axon

-Axon reported revenues of £204.5 million in fiscal 2007 with a net profit of £20 million

Axon has around 2,000 employees across the UK and North America
Operating margin of Axon stands at around 15% and is much lower than Infy's 28-30%

16 RULES FOR INVESTMENT SUCCESS

16
RULES FOR
INVESTMENT SUCCESS

B y J o h n M a r k s Te m p l e t o n

• Invest for maximum total real return

• Invest — don’t trade or speculate

• Remain flexible and open-minded about types of investment

• Buy low

• When buying stocks, search for bargains among quality stocks

• Buy value, not market trends or the economic outlook

• Diversify in stocks and bonds, as in much else, there is safety in numbers

• Do your homework or hire wise experts to help you

• Aggressively monitor your investments

• Don't panic

• Learn from your mistakes

• Begin with a prayer

• Outperforming the market is a difficult task

• An investor who has all the answers doesn't even understand all the questions

• There's no free lunch

• Do not be fearful or negative too often

Follow the LEADER

Templeton, Buffett & their tenets have attracted many but the best way to benefit from their teachings lies in discipline to stick to those principles


JOHN Marks Templeton, arguably “the greatest global stock picker of the century,” passed away this month at the age of 95. His investment tenets — simplicity and universality — attracted investors across the globe. Yet he remained an unknown figure among Indian investors. One of the reasons, according to a industry analyst, is that Indian investors don’t believe in role models. For them, investment gurus’ principles work more like “a fitness regime where most know that it is important to be fit and healthy but are not able to work out the discipline for the same.” The basic psyche of an Indian investor still remains to invest in stocks on the advise of friends, colleagues or a local broker. If their portfolio is eroded, the tendency is to immediately shift gears and keep their future possible savings in the form of yellow metal or fixed deposits. SundayET provides you an insight into why you should follow rules of investment gurus such as John Marks Templeton and Warren Edward Buffet to reap success on Dalal Street.

VALUE RATHER THAN INVEST

This is one of the core principles to investing. The success of individuals like Buffett and Templeton shows that how a focused approach to investments can help you post healthy returns from the equity markets over the long-term. Chetan Sehgal, director (equity research) of Franklin Templeton Investments, believes that this is precisely the reason for the basic investment tenets withstanding the test of many decades. “Their advice has always been — focus on fundamentals and value rather than invest based on sentiment and short-term expectations of price movements. Of course for investors, this is the hardest to implement as we are surrounded by lots of information and news which affects sentiment and there is a feeling that in equity markets you can make a quick return,” says Mr Sehgal.

CONTRARIAN APPROACH

Never follow the crowd. Great investors always follow the contrarian approach. In his 16 rules for investment success, Templeton underlines that if you buy the same securities everyone else is buying, you will have the same results as everyone else. “By definition, you can’t outperform the market if you buy the market. And chances are if you buy what everyone is buying you will do so only after it is already overpriced,” he wrote. He quotes an example of the great pioneer of stock analysis Benjamin Graham: “Buy when most people…including experts…are pessimistic, and sell when they are actively optimistic.”

UNDERSTAND RISK-REWARD RELATIONSHIP

All investments have a certain amount of risk, and normally, the rewards are commensurate to the risk taken. You should be able to judge an investment with reference to two parameters — risk-reward relationship and cost-benefit analysis. For instance, equity funds do have the ability to provide good returns over the long-term, but the question you should ask is — are you comfortable with the ups and downs of the markets? “There is no point investing all your money in equities and then spending sleepless nights due to short-term volatility. At the same time, you need to ensure that investments provide returns that will be adequate to meet longterm goals,” says Sehgal. The importance of diversification among assets is one of the tenets of Templeton.

KEEP YOUR EMOTIONS AT BAY

According to investment gurus, emotions tend to overwhelm us whenever there is a significant shift in market conditions or when faced with unforeseen circumstances, be it good or bad. Thus, while making decisions during such situations, you should be even more careful. “An objective and deliberate analysis of the situation, taking into consideration the investment objectives and time frame is an absolute must,” feels Sehgal. Anup Bagchi, ED of ICICI Securities, says successful investing is a culmination of view of the future and psychological make up of the investor and thus each individual must do what one is comfortable with. “This is why decisions of even the legendary investors are not the same. It is important to stick to basic principles but not be stuck with any particular paradigm,” he says.

STAY FLEXIBLE, OPEN MINDED AND SCEPTICAL

Volatility is an inherent part of stock market investing and investors need to keep in mind that market gyrations tend to be more pronounced over the short-term. Thus, during times of negative sentiment, often quality asset prices are available at attractive bargains and you can benefit from them. “There is an important lesson in Templeton’s investment tenet — never adopt permanently any type of asset or any selection method. Always try to stay flexible, open minded and sceptical. Long-term top results are achieved only by changing from popular to unpopular types of securities you favour and your methods of selection,” says Bagchi. He says the starting point of investing is to have a point of view of the future of economy and then the sector and then the company, or it can be individual stock picking if there are compelling reasons. “In this changing world the view of the future can change rapidly and the original assumptions of investment may undergo a change. It is critical to have an open mind about being wrong and to do course correction,” he says.

BankAm to merge BPO arm of Countrywide in India

DEAL CORNER


THE ripples of the subprime fiasco are being felt in many ways. The business process outsourcing arm of Countrywide Financial in India, CFC India Services, is merging with Bank of America’s nonbanking subsidiary, Continuum Solutions, as part of BankAm’s $2.5-billion global takeover of the loss-making Countrywide.

While there will be job cuts in India post merger, all Countrywide staff will have switch over to the BoA salary structure, said a source. Some of the top management of Countrywide led by expatriate director Tom Jones may have to go.

While BA Continuum MD Avtar Monga is expected to head the KPO segment of the merged entity, Countrywide’s head of operations (India) Gautam Bahai may be given the charge of mortgages, the source said. A BoA spokesperson from Singapore refused to comment.

As in the United States, the BoA will drop the Countrywide name in India. CFC India Services, with its 3,500 seats in Mumbai and Hyderabad, till now was operating as a subsidiary of Countrywide Financial Corporation and was providing processing and infotech related services to Countrywide in the mortgage and related financial services industry.