HCL makes $1.8 bn bet with IBM soft­ware deal

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Move im­plies HCL mak­ing its bold­est play on pro­pri­etary prod­ucts, ser­vices

HCL Tech­nolo­gies Ltd will spend $1.78 bil­lion to buy eight soft­ware prod­ucts from In­ter­na­tional Busi­ness Ma­chines Corp. (IBM), it an­nounced on Fri­day, un­veil­ing the sin­gle-largest ac­qui­si­tion by an In­dian in­for­ma­tion tech­nol­ogy (IT) ser­vices com­pany and a buy­out that is un­like any made by risk-averse home-grown IT firms.

Sig­nif­i­cantly, the de­vel­op­ment im­plies that the bil­lion­aire Shiv Nadar-led HCL Tech is mak­ing its bold­est bet on sell­ing pro­pri­etary prod­ucts and ser­vices, as the Noid­abased com­pany has spent a to­tal of $3.02 bil­lion in build­ing up its soft­ware prod­uct busi­ness since the firm stitched its first in­tel­lec­tual prop­erty (IP) part­ner­ship in Au­gust 2016.

Ac­cord­ing to chief ex­ec­u­tive of­fi­cer (CEO) C. Vi­jayaku­mar, HCL has in the last 28 months spent $1.25 bil­lion in li­cens­ing IPS from com­pa­nies such as IBM and DXC Tech­nol­ogy Co, and then build­ing prod­ucts around them.

Un­der the all-cash deal, HCL will use $1.475 bil­lion of its own cash and bor­row $300 mil­lion to fi­nance the trans­ac­tion, which the man­age­ment

MINT GRAPHITI ex­pects to close by mid-2019.

HCL ex­pects that the eight soft­ware prod­ucts, such as IBM Notes, Domino and App­scan, will help it gar­ner $625 mil­lion in in­cre­men­tal revenue in the 12 months af­ter com­ple­tion of the deal. In a pre­sen­ta­tion made to an­a­lysts, HCL said these prod­ucts have a mar­ket size of $110 bil­lion and that five of them are notch­ing up dou­ble-digit growth.

HCL’S ac­qui­si­tion strat­egy con­trasts that of its ri­vals in three im­por­tant ways.

First, its in­vest­ments are in soft­ware prod­ucts while ri­vals such as Tata Con­sul­tancy Ser­vices Ltd, In­fosys Ltd and Wipro Ltd con­tinue to strengthen their pres­ence in dig­i­tal such as buy­ing de­sign stu­dios.

“The $1.8bn deal by HCLT of IBM prod­uct is un­like oth­ers, given it marks a foray into soft- ware with se­ri­ous cap­i­tal com­mit­ment,” Ku­nal Tayal of Bank of Amer­ica Mer­rill Lynch wrote in a note on Fri­day.

Sec­ond, there’s the size of the deal. In­dian IT firms, true to their DNA, have shied away from spend­ing more than $600 mil­lion on any one ac­qui­si­tion.

Fi­nally, HCL con­tin­ues to be ret­i­cent about the de­tails of this trans­ac­tion and its en­tire IP part­ner­ship. A case in point: The man­age­ment de­clines to com­ment on how much revenue the com­pany has recorded

The gov­ern­ment on Fri­day named Kr­ish­na­murthy Subra­ma­nian, an as­so­ciate pro­fes­sor and ex­ec­u­tive di­rec­tor at the Cen­tre For An­a­lyt­i­cal Fi­nance at the In­dian School of Busi­ness (ISB) in Hyderabad, as its next chief eco­nomic ad­vi­sor (CEA) ahead of its fi­nal bud­get to be pre­sented early next year.

Subra­ma­nian, 47, spe­cial­izes in bank­ing, cor­po­rate gov­er­nance and eco­nomic pol­icy.

The CEA in the fi­nance min­istry is a key con­trib­u­tor to the gov­ern­ment’s over­all strat­egy in man­ag­ing the econ­omy and of­fers a cri­tique of the hits and misses through the eco­nomic sur­vey. Raghu­ram Ra­jan, un­der whose ad­vice Subra­ma­nian ob­tained his PHD in fi­nan­cial eco­nomics at the Univer­sity of Chicago’s Booth School of Busi­ness, was the CEA be­fore he be­came the Re­serve Bank of In­dia gover­nor in 2013.

The depart­ment of per­son­nel said the ap­point­ments com­mit­tee of the cab­i­net cleared Subra­ma­nian’s ap­point­ment for a term of three years. Ra­jat Kathuria, di­rec­tor and chief ex­ec­u­tive of the In­dian Coun­cil for Re­search on In­ter­na­tional Eco­nomic Re­la­tions (Icrier) said Subra­ma­nian was a “thought­ful choice” given his ed­u­ca­tional back­ground and pub­lished works. Subra­ma­nian’s writ­ings in Mint give a peek into the new CEA’S mind. P20

“For the of­fice of the CEA, the im­me­di­ate chal­lenges in­clude man­ag­ing the fis­cal deficit, pro­jected at 3.3% for this year, meet­ing the ₹80,000 crore dis­in­vest­ment tar­get, re­cap­i­tal­iza­tion of banks and tack­ling the stress in sec­tors like tele­com,” said Kathuria. Cre­at­ing pro­duc­tive jobs in the econ­omy is a medium-term chal­lenge. Phone calls to Subra­ma­nian re­mained unan­swered at the time of pub­lish­ing.

Subra­ma­nian’s ap­point­ment comes at a time when the Na­tional Demo­cratic Al­liance gov­ern­ment is ex­pected to out­line its vi­sion for fur­ther re­forms and in­clu­sive growth in the in­terim bud­get on 1 Fe­bru­ary. Al­though the gov­ern­ment has re­sisted pres­sure to take pop­ulist steps in the past, its fi­nal bud­get be­fore na­tional

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