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HCL to buy some IBM software assets for $1.8 billion; shares fall

Reuters 

By Krishna V Kurup

(Reuters) - Indian firm agreed to buy some from for $1.80 billion to help it compete better with bigger rivals such as and Infosys Ltd.

HCL shares fell as much as 7.7 percent to their lowest in five months.

Some analysts said the deal did not make sense for HCL in the long term because it already has a partnership with IBM and the benefits from the acquisition did not justify the price.

The acquisition, if completed, will be the largest-ever acquisition by an Indian company, according to Refinitiv data.

The deal will allow IBM to further slim down its legacy businesses as it focuses on The U.S. company has been hurt by slowing and wavering demand for mainframe servers, making a turnaround difficult.

IBM will divest seven of its products, including its BigFix, marketing Unica and Connections.

HCL said the acquisition will give it scale in areas such as retail, and It will add about $650 million in revenue on a run-rate basis in the second year after closing and increase cash earnings by about 15 percent.

"I don't think it will help HCL on a long term basis ... this deal is a negative from HCL's standpoint," said Sudheer Guntupalli, a sector analyst with in

"They already have IT partnerships for five of the seven products in the deal. So there would hardly be any incremental benefits on a qualitative basis," he said, adding that it did not make sense for HCL to rely so heavily on a single vendor's software when rivals have remained agnostic.

HCL, which has a market value of nearly $20 billion, recorded revenue of 505.69 billion rupees ($7.16 billion) last fiscal year. Rival TCS, the largest listed company in India, earned 1.23 trillion rupees in revenue last year and Infosys recorded revenue of 705.22 billion rupees.

HCL's stock fell as much as 7.7 percent to 934.45 rupees on Friday, their lowest since July 6.

The transaction is expected to close by mid-2019.

($1 = 70.5925 Indian rupees)

(Reporting by Vibhuti Sharma in Bengaluru; Editing by Sayantani Ghosh and Gopakumar Warrier)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, December 07 2018. 12:13 IST
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