Infosys in takeover bid for Capgemini, may end up with a BPO tieup

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In a bid to exploit the high-margin consulting business and offset the reducing margins on commodity business due to rising rupee, India’s second largest IT services company, Infosys Technologies is believed to launch a takeover bid for Europe’s largest IT service group, Capgemini. The merger could enable Infosys to compete with other consulting giants globally. Similar deals have taken in past where IBM took over PwC, EDS bought AT Kearney and Capgemini bought consulting division of Ernst & Young. Infosys consulting business faced a loss of Rs.111 crore in FY07, and has been way behind global players like IBM, Accenture and EDS. Even the merged entity would have value of $14 billion way behind the leading players. However, given Infosys huge cash reserved of Rs.6200 crore and a market cap of $27 billion, Infosys can pull of the acquisition of Capgemini having a market value of $10.4 billion. But the growth rates of both companies are quite different with Infosys having higher growth as compared to Capgemini. Another issue that would arise in the case of merger would be the cultural integration issue. Some analyst also believe that the Infosys – Capgemini deal could end up in a joint BPO operations which makes sense as it is a high growth area.