Infosys on Friday said it has put its subsidiaries, Skava and Panaya, billed as strategic acquisitions not very long ago, on the block. Salil Parekh, the new CEO of Infosys, said, “Skava and Panaya did not fit all the criteria we have today for scaling our businesses.” The company anticipates completion of the sale by March 2019 and accordingly assets amounting to USD316 million and liabilities worth USD50 million are classified as “held for sale”. At a standalone level, India’s second-largest software exporter would take a writedown of about Rs 589 crore for Panaya.
The decision to sell Panaya and writedown has brought the governance issue back to life. A whistle-blower had written to market regulator Securities and Exchange Board of India (Sebi) and its US counterpart seeking board accountability. At least, four current members were part of the board that cleared the acquisitions three years ago. The whistle-blower’s letter asked “within a year the board had characterised these acquisitions from being a great strategic acquisition to a completely value-less acquisition. My question to you as the regulator is, where is the board accountability in this whole transaction?”
JN Gupta, managing director, Stakeholders’ Empowerment Services, a corporate governance advisory, said there could be three possible interpretations. “First, it is a pure business decision. And one should not read too much into it. Second, it was a mala fide deal to begin with and Infosys wants to disassociate itself from it. The third, this is a bit wild — the company wants to prove founder NR Narayana Murthy right. We need to figure out which of these is correct.”
While the company tried to sell the move as a routine business decision, the troubled history and continuing controversies suggest it is anything but.
Tough questions posed by the whistle-blower
In one of his letters last year, the whistle-blower had raised issues around valuation and conflict of interest. Some of these questions remain unanswered for the common shareholder:
* Can the company categorically deny that any employee and/or his/her relative (spouse, father, mother, brothers, sisters, nephews and nieces, children; spouse’s father, mother, sisters, brothers, nephews, and nieces) benefitted personally in the Panaya acquisition?
* Can the company certify with data that the said acquisition was not overvalued as alleged by the whistle-blower?
* If the answer to the first question is yes, can the company provide the names of Panaya investors related to Infosys employees with details of the nature of their relationship to the Infosys employee and the number of shares they held on the date when Panaya was acquired by Infosys?
If that data is not accessible since some of them may have invested in a VC, which in turn invested in Panaya, can the company get the VC firms to confirm whether any such named relative of any named employee held shares in Panaya at the time of acquisition by Infosys without disclosing any financial or shareholding details? Some well-wisher shareholders believe that any international payment today requires firms to do adequate due diligence on the ultimate beneficial owners (UBOs). This is, according to them, required everywhere for any international payment as part of compliance to anti-money laundering laws.
Therefore, these shareholders believe that it is perfectly justifiable for the company to seek ultimate beneficial ownership details of the fund that owns Panaya.
There is a widespread belief among the well-wisher shareholders of Infosys that the scope of the report has been defined in a manner convenient to the Infosys board and that has defeated the objective of having a thorough investigation. This rumour could be dispelled by disclosing the letter retaining these three firms to do investigation.
Multiple investigation reports remain a secret
Eventually, three different agencies probed the Panaya deal and the various connected issues. None of these reports by Cyril Amarchand Mangaldas, Latham and Watkins, and Gibson, Dunn and Crutcher have been made public despite pleas that these, along with the Panaya valuation report, be put on the website of the company. Infosys founder NR Narayana Murthy himself had earlier demanded that the company also provide a point-by-point denial of the whistle-blower accusations with data and facts. The whistle-blower has made serious allegations and just a top-level press release is not sufficient. The company should provide answers to the questions emanating from the whistle-blower accusations, Murthy had argued.
New brass, old disclosures
Under Nandan Nilekani, who took over after R Seshayee and Vishal Sikka resigned in August largely due to Panaya-related issues, the company went about addressing shareholder concerns. It announced a Rs13,000 crore share buyback, a key demand of shareholders. In December 2017, it moved Sebi to settle the disclosure issues in the matter of former CFO Rajiv Bansal’s severance pay. It also picked Parekh as the new CEO, who joined in January.
However, when it comes to disclosures, investors feel the company has not done any better than under Sikka. “Transparency was a competitive advantage of Infosys till 2014. We walked the talk,” Murthy had written to the board, a month before Nilekani took over.
In October, the company refused to put out details of the probe as it would “inhibit the company’s ability to conduct effective investigations into any matter in the future”.
Though Murthy continued to maintain that disclosures should be made and that he was disappointed with the board, he didn’t seem to have pursued it with the same vigour as before. “Sadly, it appears we will no longer know the truth,” he concluded in a statement issued in October.
Investors and regulators might want to pick it up from where Murthy had left, as Panaya looks set to leave the company’s balance sheet forever.
Source: Economic Times