Panaya in The Eye of In­fosys Storm

Con­cerns re­lated to the $200-m ac­qui­si­tion of Is­raeli soft­ware co in 2015 key to cur­rent bat­tle

The Economic Times - - Front Page -

Ku­nal Tal­geri, KR Bala­sub­ra­manyam, Jochelle Men­donca & TV Ma­halingam

Ben­galuru: The $200-mil­lion ac­qui­si­tion of Is­raeli soft­ware com­pany Panaya by In­fosys in Fe­bru­ary 2015 and the se­ries of con­tentious in­ter­nal de­bates it trig­gered is at the heart of the high-deci­bel bat­tle un­der­way be­tween some of the iconic founders of In­dia’s sec­ond-largest soft­ware com­pany and its man­age­ment, ac­cord­ing to four peo­ple aware of the de­tails.

The ac­qui­si­tion gave rise to a se­ries of ques­tions on the process of due dili­gence and gov­er­nance, with the then chief fi­nan­cial of­fi­cer Ra­jiv Bansal ques­tion­ing the va­lid­ity of the trans­ac­tion be­fore fi­nally re­sign­ing from the com­pany, ac­cord­ing to the sources cited above. ET spoke to two for­mer se­nior em­ploy­ees, a cur­rent em­ployee, and a con­sul­tant who has worked with In­fosys for over a decade, about the con­cerns sur­round­ing the Panaya trans­ac­tion and the sub­se­quent fall­out.

“The In­fosys board needs to re­visit the Panaya deal in share­holder in­ter­ests,” said one of the for­mer em­ploy­ees. “Three points merit ex­am­i­na­tion. One, did the deal have Bansal’s sign-off ? Two, did it com­ply with all due dili­gence norms to en­sure there were no con­flicts of in­ter­est? Three, the cir­cum­stances in which it got board ap­proval,” he said. The con­sul­tant quoted above told ET, “Bansal was not happy about the ac­qui­si­tion, es­pe­cially the price”. An­other for­mer em­ployee said that Bansal was kept out of the deal be­cause he raised un­com­fort­able ques­tions. The for­mer CFO did not re­ply to emailed queries, text mes­sages and phone calls. In­fosys did not re­ply to email ques­tions sent by ET on the is­sue.

For­mer CFO Ra­jiv Bansal ques­tioned va­lid­ity of trans­ac­tion be­fore fi­nally re­sign­ing from the com­pany

How­ever, in­de­pen­dent direc­tor Roopa Kudva, in re­ply to ques­tions about gov­er­nance within In­fosys, told ET: “There was never any in­ten­tion to si­lence him (Bansal), and he has al­ways been free to com­plain to a reg­u­la­tor about any im­pro­pri­ety he may have seen dur­ing his ten­ure. He has been at ab­so­lute lib­erty to do so.”

“In the case of Bansal’s sev­er­ance, due process was fol­lowed, nec­es­sary ap­provals were taken and dis­clo­sures were made. There was no im­pro­pri­ety or ‘hush money’ in­volved,” Kudva said.

In an ex­plo­sive in­ter­view in ET’s Fri­day edi­tion, In­fosys founder NR Narayana Murthy ques­tioned the high sev­er­ance pay­outs made by the com­pany (since June 2015) say­ing “such pay­ments raise doubts whether the com­pany is us­ing such pay­ments as hush money to hide some­thing”.

Murthy did not re­ply to emailed queries from ET on pos­si­ble con­flicts-of-in­ter­est in the Panaya deal. A se­nior for­mer em­ployee, who was privy to the Panaya developments, said the Is­raeli com­pany was on the verge of shut­ting down, and a num­ber of peo­ple were laid off be­fore the buy­out.

The price paid by In­fosys meant the com­pany was val­ued six times its rev­enue, Bansal had told an­a­lysts in the earn­ings call when the deal was an­nounced. The for­mer em­ployee who spoke to ET pointed to a Fe­bru­ary16, 2015 ar­ti­cle in Is­raeli daily Globes, which he said trig­gered in­tense de­bate within In­fosys af­ter the ac­qui­si­tion.


“The com­pany was in a se­vere state of cri­sis and had laid off em­ploy­ees, and now they are re­ceiv­ing a decent re­turn on their money. The list of in­vestors in­clude the Bench­mark Cap­i­tal and Bat­tery Ven­tures ven­ture cap­i­tal firms, along­side Hasso Plat­tner Ven­tures. Hasso Plat­tner was among the founders of SAP. Haim Shani and Moshe Licht­man’s Is­rael Growth Ven­tures came into the com­pany at the last minute be­fore the exit, in­vest­ing $20 mil­lion in Jan­uary this year,” the re­port said.

Sikka used to re­port to Hasso Plat­tner at SAP. At In­fosys, Sikka has hired sev­eral ex-SAP ex­ec­u­tives like Michael Reh, Ri­tika Suri and Ab­dul Razack. Sub­se­quent to the Jan­uary 2015 cap­i­tal in­fu­sion in Panaya, In­fosys ac­quired the com­pany a month later. The four sources who spoke to ET said the “Panaya fac­tor” is cru­cial be­cause it is now linked to Bansal’s exit.

The 2015-16 In­fosys annual re­port re­vealed that the com­pany had paid Rs 17 crore to CFO Ra­jiv Bansal, who quit in Oc­to­ber 2015, but con­tin­ued to serve as an ad­viser to the CEO and the board un­til De­cem­ber. In­fosys sub­se­quently ex­plained the pay­ment as part of an en­hanced non-com­pete.

The com­pany tried to put to rest doubts about Bansal’s sev­er­ance even at the June 2016 annual gen­eral meet­ing.


In Oc­to­ber 2016, In­fosys in a state­ment to the stock ex­change said it had car­ried out two in­ves­ti­ga­tions into sev­er­ance pay­ment made to Bansal. The com­pany wrote that the in­ves­ti­ga­tions were con­ducted fol­low­ing “in­sin­u­a­tions” and ru­mours and an anony­mous let­ter it re­ceived fol­low­ing Bansal’s exit.

Both in­ves­ti­ga­tions, the com­pany said, were con­ducted by Cyril Amarc­hand Man­gal­das and were “shad­owed” by con­sul­tancy KPMG. The in­ves­ti­ga­tions looked into the cir­cum­stances that led to the sev­er­ance pay­ments, and in par­tic­u­lar, whether it had been made to pre­vent Bansal from dis­clos­ing any im­pro­pri­ety.

The first in­ves­ti­ga­tion was car­ried out in Oc­to­ber 2015. The sec­ond in­ves­ti­ga­tion, car­ried out in Au­gust 2016, was or­dered by the au­dit com­mit­tee of the board fol­low­ing the re­ceipt of an anony­mous let­ter that al­leged that the sev­er­ance pay­ments made to Bansal were to si­lence him. Both in­ves­ti­ga­tions re­vealed no wrong­do­ings or ef­forts to cover up wrong­do­ings.

In the Fe­bru­ary 16, 2016 call to an­nounce the ac­qui­si­tion, stock bro­ker­age No­mura’s Ash­win Me­hta was the only an­a­lyst who had at­tempted to probe the valu­a­tion as­cribed to Panaya. “If you can share how much of a pre­mium have we paid on val­u­a­tions ver­sus the $20 mil­lion round that hap­pened in there in Jan­uary,” he asked.

In re­sponse to Me­hta’s ques­tion, In­fosys CEO Sikka said, “Maybe, I can make a broad com­ment on the valu­a­tion, we looked at the valu­a­tion from mul­ti­ple dif­fer­ent per­spec­tives, and in all per­spec­tives, the val­u­a­tions come within the correct band. We had an in­de­pen­dent group, bankers from Deutsche Bank, look at the valu­a­tion of Panaya, and we feel very com­fort­able with the valu­a­tion.”

When Me­hta asked if there had been a re­struc­tur­ing at Panaya, Ri­tika Suri, for­mer SAP ex­ec­u­tive and cur­rent head of merg­ers and ac­qui­si­tions at In­fosys said, “They did have a CEO change back in April or May but we feel pretty con­fi­dent in the ex­ist­ing man­age­ment team and their abil­ity to de­liver,” she said. When ET asked Sikka on Novem­ber 10, 2016 about Bansal’s de­par­ture, he replied: “First of all, this is a board mat­ter. You should talk to the board.”

“In ret­ro­spect, you can ar­gue that it (the sev­er­ance pack­age) was larger than it should have been. It was a judge­ment that we made at the time, it was done over a two-day pe­riod that was in­tense. The thing that I am com­forted by is that the com­pany has done noth­ing wrong,” he told ET.

One of the se­nior ex-em­ploy­ees who cor­rob­o­rated the Panaya con­flict of in­ter­est in In­fosys said it is just one of the in­stances of poor prac­tice of dis­clo­sures. “This is not an is­sue of law — it is of gov­er­nance.”


For­mer In­fosys CFO Ra­jiv Bansal FILE PHOTO

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