Infosys likely to buy Europe's IT giant Capgemini

Bangalore/London, June 29: Infosys Technologies now moves the international bourses. A spate of rumours on the trading floors of Europe that Infosys is mulling a bid to buy Europe's largest IT services giant, Capgemini, lifted the mood on Euronext, Paris, and pushed Paris' CAC-40 index up by 3.58 euros. This at a time when the buzz surrounding Infy looking at a big inorganic marquee acquisition gathers pace.

Both sides strongly denied any such move. European market reports across agencies quoted traders, as rumours that Infosys is mulling a bid for the consultancy emerged. At 10:00 pm IST, on France's CAC-40 benchmark index, Capgemini gained 4.6 pc to a two week high of 53.78 euros. "There is no possibility of it acquiring Capgemini, and nor were there any preliminary discussions," persons closely involved with Infosys said. An official spokesperson for Capgemini, Europe told sources, "We do not comment on speculation."

Whether it does or not, the story isn't so much about Infy acquiring Capgemini.

It's about the fact that European investors were happily mopping up Capgemini shares, and pushing up its relatively languishing scrip in the belief that Infy can, and will. Infosys is "big enough and none of the large Indian players has made a large acquisition in Europe," reported AFX, citing a Dresdner Kleinwort analyst.

Now, an Indian contender is fast becoming de rigueur in any deal story overseas. It's yet another sign of India Inc's rising clout in the global M&A market. On any given day, European markets swirl with rumours of bid talks for at least a dozen companies.
Now, suddenly, traders on equity floors are throwing in, almost as a routine, the names of Indian companies into the melee, and share prices of target or acquirer companies are dancing to the India tune.

Market reports also quoted analysts assaying, "margins are very high in consulting business as compared to other commoditised business Infosys has. If the deal with Capgemini actually happens, Infosys will be able to successfully compete with other biggies in the consulting space... it will fit in very well."

If such a merger were to happen, the combined strength of the two companies in terms of turnover would stand at around billion, still some way behind global leaders IBM, EDS and Accenture. The consulting business for Infosys is still on the investment mode, at 1.3 pc of total revenue, and suffered a loss of Rs 111 crore with a topline of Rs 213 crore in FY07.

However, the financial fundamentals of both the IT services giants throw up a very diverse set of numbers. The operating margin of Infosys stands at 27.57 pc while for Cap Gemini it is at 5.8 pc. For FY07, Infosys registered revenues of