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%