Sense of rumour

Some time in mid-2007, those shadowy “investment banking sources” of the Indian business media let on that Infosys was preparing to acquire the France headquartered IT consultancy firm Capgemini. Last fortnight, that mill was grinding furiously with the same rumour—only this time it’s not Infosys but Wipro that’s supposed to have trained its sights on the French giant. Azim Premji’s company has no doubt been on the acquisition trail, snapping up 12 firms in the past two years. But these have been largely niche acquisitions, rather than buyouts done for size and scale—the largest was that of the New Jerseybased IT outsourcing entity, Infocrossing for $600 million. A takeover of the $7 billion Capgemini, feel analysts, is a totally different ballgame.

The reports reckon that Wipro is looking at a m60 per share bid for Capgemini, valuing the IT giant at 8 billion euros ($7.15 billion). At the end of the second quarter, Wipro had reserves of $510 million and mutual fund investments of $580 million.

A senior Wipro source maintains that an acquisition of a company of Capgemini’s size will upset Wipro’s entire rhythm. The company’s strategy, he asserts, is to go for small buyouts—also dubbed the string of pearls strategy. Sudip Nandy, Wipro’s new Chief Executive for Telecom and Product Engineering Solutions, who was handling Wipro’s mergers & acquisitions as Chief Strategy Officer till December-end, dismisses the media reports as speculation.

Another industry source explains that Indian software companies have not yet matured to go for large-scale buyout deals. “This is still a very young industry of about 25 years. The Indian auto, manufacturing, pharma and banking sectors, on the other hand, have both maturity and confidence to go for large buys.’’

Phil Codling, Principal Analyst at global consultancy firm, Ovum, expresses similar views. “We don’t think the Indian firms, even the very largest ones such as Wipro and Infosys, have the capability or the desire to integrate an 80,000-employee global business into their high-margin, fast-growing operations.”

According to him, the trend of big fish swallowing up small, niche firms is likely to remain the pattern in 2008 too. “The fact is that customers often find today that they have an even wider choice of IT services suppliers than they did five or 10 years ago.’’

Yet, there are analysts out there who believe that there can’t be smoke without fire. Shikha Saxena, Consultant with offshore advisory firm Zinnov, believes Wipro is indeed seeking to become a truly global firm. “Product engineering capabilities of Wipro, though welldeveloped, have not been able to provide it a true edge in the technology consulting space. The Indian IT vendor plans to synergise its internal product engineering capabilities with the established operations of Capgemini, and gain an edge in the technology consulting domain,” she says. The moot point, however, is whether that edge is worth paying some $8 billion for.

— K.R. Balasubramanyam