Axon switches horses - but the race is not over

Axon broke its silence this morning to announce it is switching its bid recommendation from Infosys to HCL (see HCL tosses its hat (and £440m) into the ring for Axon) “when the HCL offer is made” (i.e. when the formal offer is sent to shareholders, likely next week). Obviously the EGM scheduled for 20th October to vote on the Infosys offer is now irrelevant, and shareholders will have another 46 days to consider the new bid.

I managed to speak to one of my good friends at Infosys (I have good friends at HCL and all the other top Indian players too, by the way!) even though it is Mahatma Gandhi’s birthday, a public holiday (the Indian stock markets are therefore closed, so no immediate reactions to Infosys’ or HCL’s shares to report). Infosys seems very keen that shareholders do not rush to accept the HCL offer, though I have the feeling they expect HCL would raise again if a higher offer were to be forthcoming – from Infosys or from other quarters.

I don’t think this will be the end of the affair. If I were Infosys management, I’d wait a little longer to see if another player makes a move before deciding whether to raise or quit. It’s rare for such a prize to be up for grabs. SAP skills are one of the few where demand exceeds supply. I have spoken to almost all the leading global, European and Indian SIs in recent months about their SAP practices and they say that it is supply that is constraining growth. It’s not so much that enterprises are implementing new applications – especially now. It’s more to do with system consolidation (e.g. through virtualisation) and ‘platform harmonisation’ (i.e. getting all its SAP systems up to the same release level) in order to reduce costs. Indeed, HCL has been offering ‘free SAP upgrades’ (i.e. they’ll pay the licence fees) if customers use their migration services. This is just a huge opportunity for IT services players, especially those that have the skills in low-cost locations. The top five Indian SIs are SAP Global Service Partners and that imprimatur puts them on level pegging in the credibility stakes with the likes of IBM, HP/EDS, Accenture, Deloitte, Logica, Capgemini, Atos Origin, and Fujitsu. What’s not to like?