Infosys says will probe allegations on Panaya acquisition


Bengaluru: Infosys Ltd will investigate claims levelled by a whistle-blower in an email against the management and the board of alleged wrongdoing when it bought Panaya Ltd, the Israeli automation technology firm, although India’s second largest software firm strongly refuted all such allegations.

On Monday, Infosys, in a statement, said that the “assertions made in the letter are libelous and are aimed at tarnishing the image of Infosys and its management”.

“We categorically state that no member of the Infosys management team was involved in any prior investments in Panaya, and insinuations that anyone from the management team at Infosys benefitted from this (Panaya) acquisition are misleading and slanderous,” said the statement.

“Regardless of the malicious intent of this anonymous letter, the company will pursue its normal course of action and investigate the charges made,” it said.

Infosys did not disclose details of this investigation but a spokeswoman clarified that more details on this investigation will be shared by the company in due course of time.

“As stated before, we will respond to all queries received either directly or from the regulatory authorities, as per our process,” said the spokeswoman.

“The letter alleges that Infosys acquired Panaya at a 25% margin to the valuation of Series E investor that came in on January 8, 2015. It should be noted that the Series E investor was a minority shareholder (less than 15%) and was towards preferred stock, whereas Infosys’ acquisition in Panaya is for 100% stake,” the company said in a statement.

Infosys said that the valuation of investment in preferred stock versus 100% strategic acquisition “cannot and should not be compared” as there is “a premium for acquiring a controlling stake”.

Infosys also dismissed another charge of allowing Panaya shareholders to take out $20 million and share it among themselves at the time of acquisition.

“At the time of its acquisition, Panaya had a cash balance of $18.6 million or Rs116 crore. It is further alleged that the cash balance in Panaya came down from Rs127 crore in 2014 to Rs1.37 crore in 2015. It should be noted that these balances represent only one entity of Panaya. Panaya has four legal entities (Panaya Inc., Panaya Ltd, Panaya GMBH and Panaya Japan—financials for all of these entities are available on our website) and we should look at consolidated cash balances and not selectively look at only one entity. The balances of these four entities as of 2014 amounted to Rs143 crore net of borrowings of Rs30 crore and Rs122 crore in 2015,” said the statement.

Infosys issued this statement after an email, purportedly written by an anonymous whistle-blower, dated 19 February, and sent to this newspaper and copied to senior executives of the Securities and Exchange Board of India (Sebi), questioned if Infosys followed the due process when it spent $200 million to buy Panaya in February 2015.

On Monday, Mint also reported that Infosys’s then chief financial officer Rajiv Bansal walked out of a 15 February 2015 meeting where board members of the software services company were asked to approve a proposal to buy Panaya. Bansal, who was not a board member but attended the meeting in his capacity as the CFO, believed that the Panaya acquisition was ill-thought-out, and also believed that Infosys paid too much money. Bansal also believed that he was not kept in the loop during the due diligence process as the then head of mergers and acquisitions, Ritika Suri, reported to the CEO’s office, unlike in the past when the M&A head reported to the head of finance.

Infosys clarified that in the case of Panaya, all the requisite steps in this process were followed.

“The valuation was done by Deutsche Bank, the financial and tax due diligence was done by one of the Big four firms and legal diligence was done by a leading law firm – Kirkland & Ellis. The management presented the rationale behind the acquisition—including synergies and business potential to the board, along with necessary reports and findings. The board deliberated the acquisition, and unanimously approved the investment which was well within the valuation range determined by the evaluator.”

On Monday, Infosys chief executive officer Vishal Sikka also wrote an email to all employees, asking them to continue to focus on work and not get distracted by what Sikka mentioned as “speculations and fabrications”.