Even as the shares of both Infosys Technologies and Capgemini SA jumped on rumors of India’s IT bellwether acquiring Europe’s largest IT services firm, both companies denied the move while analysts questioned its very logic.
An official spokesperson of Infosys told FE that the company did not comment on market rumours, but later on Friday evening, CEO S (Kris) Gopalakrishnan said after a function that “a rumour can be right or wrong”. Even key competitors of the company seemed circumspect. “I’m very surprised with reports of Infosys buying Capgemini. I don’t think there is any truth in it,” a top executive from one of its competitors told FE.
A cross-section of analysts also emphasised, “Logically and strategically, it does not make any sense for Infosys to acquire Capgemini.” Analysts said there were a whole lot of “ifs and buts” that would go against Infosys buying out Capgemini, not least of them being cultural issues and serious integration problems besides the small matter of widely different net margins. “It is not happening. Infosys would not go in for a margin compromise to acquire Capgemini,” said Harit Shah of Mumbai-based Angel Broking.
Infosys’s operating margin stood at 31.73% in the fourth quarter ended March 31 and Capgemini’s were a weak 5.8%. The Paris-based company employs a large number of French who would have to be assimilated into its fold. “They (Capgemini) are too huge and are not culturally aligned. Can you digest around 70,000 people along with the 72,000-odd people that Infosys has and still continue to grow at a rate at which you are growing?” asked an analyst. For 2007-08, Infosys has projected a 28-30% revenue growth in dollar terms, while Cap Gemini has estimated growth of 8% for calendar year 2007. The French company posted losses through 2002-2004 before turning the corner, thanks in large part to outsourcing work to India.
Infosys’s consulting business has not quite taken off but analysts say it would prefer to look at acquiring smaller consulting companies with an employee base of 500-1,000.
In any case, besides the consulting business the two companies have complementary strengths.
The most potent argument against the acquisition however is Infosys’ track record of organic growth.
Current co-chairman Nandan Nilekani has maintained in the past that Infosys did not need to necessarily acquire to grow.
And even though raising global debt for Infosys, which is sitting on cash reserves of Rs 6,048 crore or $1.5 billion would not be an issue at all, for a company that takes pride in being debt-free, an acquisition which would call for serious fund raising, may not be palatable.
http://www.financialexpress.com/fe_full_story.php?content_id=168647
An official spokesperson of Infosys told FE that the company did not comment on market rumours, but later on Friday evening, CEO S (Kris) Gopalakrishnan said after a function that “a rumour can be right or wrong”. Even key competitors of the company seemed circumspect. “I’m very surprised with reports of Infosys buying Capgemini. I don’t think there is any truth in it,” a top executive from one of its competitors told FE.
A cross-section of analysts also emphasised, “Logically and strategically, it does not make any sense for Infosys to acquire Capgemini.” Analysts said there were a whole lot of “ifs and buts” that would go against Infosys buying out Capgemini, not least of them being cultural issues and serious integration problems besides the small matter of widely different net margins. “It is not happening. Infosys would not go in for a margin compromise to acquire Capgemini,” said Harit Shah of Mumbai-based Angel Broking.
Infosys’s operating margin stood at 31.73% in the fourth quarter ended March 31 and Capgemini’s were a weak 5.8%. The Paris-based company employs a large number of French who would have to be assimilated into its fold. “They (Capgemini) are too huge and are not culturally aligned. Can you digest around 70,000 people along with the 72,000-odd people that Infosys has and still continue to grow at a rate at which you are growing?” asked an analyst. For 2007-08, Infosys has projected a 28-30% revenue growth in dollar terms, while Cap Gemini has estimated growth of 8% for calendar year 2007. The French company posted losses through 2002-2004 before turning the corner, thanks in large part to outsourcing work to India.
Infosys’s consulting business has not quite taken off but analysts say it would prefer to look at acquiring smaller consulting companies with an employee base of 500-1,000.
In any case, besides the consulting business the two companies have complementary strengths.
The most potent argument against the acquisition however is Infosys’ track record of organic growth.
Current co-chairman Nandan Nilekani has maintained in the past that Infosys did not need to necessarily acquire to grow.
And even though raising global debt for Infosys, which is sitting on cash reserves of Rs 6,048 crore or $1.5 billion would not be an issue at all, for a company that takes pride in being debt-free, an acquisition which would call for serious fund raising, may not be palatable.
http://www.financialexpress.com/fe_full_story.php?content_id=168647