Infosys Ex-Directors Seek $1.8 Billion Buyback to Lift Value

Aug 06, 2014 6:56 am ET

(Updates with closing shares in seventh paragraph.)

Aug. 6 (Bloomberg) -- Infosys Ltd.’s former directors and investors T.V. Mohandas Pai and V. Balakrishnan are seeking a 112 billion-rupee ($1.8 billion) buyback by India’s second- largest software services company to boost the stock’s value.

Infosys should pay as much as 3,850 rupees a share, Balakrishnan, who resigned from the company’s board in December, and Pai, who left the board in 2011, wrote in a letter dated July 29 addressed to the board. Sarah Gideon, a spokeswoman for the software exporter, confirmed the letter was received. The price is a 9.6 percent premium over yesterday’s closing price.

N.R. Narayana Murthy, who returned as chairman in June 2013 to help revive growth, boosted margins and handed control of the software exporter he co-founded to Chief Executive Officer Vishal Sikka on Aug. 1. Shares of Infosys have risen 2.6 percent this year, compared with bigger rival Tata Consultancy Services Ltd.’s 15 percent gain.

“There is a dramatic valuation dis-connect in the market place and this needs to be corrected,” Balakrishnan, Pai and D.N. Prahlad, a former senior vice president, wrote in the letter, a copy of which was obtained by Bloomberg TV India. Balakrishnan confirmed by telephone yesterday that he and the two other shareholders wrote the letter, and declined to comment further.

The board of Bengaluru-based Infosys often gets letters from shareholders, Gideon wrote in an e-mail.

“Should there be any development that will impact our shareholders, we will immediately inform the regulatory bodies and shareholders on priority,” she said.

Infosys rose 1.8 percent to 3,575.85 rupees at the close in Mumbai trading, the stock’s highest price since March 12.

Investor Pressure

The letter will put pressure on Infosys’s management as the executives are well regarded in India, Walter Rossini, who oversees about $200 million of Indian assets at Aletti Gestielle SGR SpA in Milan, said by telephone.

“The buyback would be an easy way to satisfy investors,” said Rossini. “It would make Infosys more comparable with American technology companies in terms of valuation.”

Balakrishnan was the chief financial officer at Infosys for six years until October 2012. He was later made the chairman of unit Lodestone Holding AG, a consulting company based in Switzerland. He is currently the chairman of Exfinity Fund, a venture capital fund based in Bengaluru.

Pai was the head of human resources development before he left in June 2011. He had earlier also served as CFO.

Infosys had 275.4 billion rupees in cash and short-term investments as of June 30, according to data compiled by Bloomberg.

The former executives have also proposed Infosys should announce an ongoing buyback program of as much as 40 percent of the previous year’s profit “on a consistent basis.”

The company posted a net income of 106 billion rupees in the year ended March, according to data compiled by Bloomberg.