Sikka’s $200 million boon to Hasso Plattner turns out to be a big headache for Infosys shareholders.

In the ongoing Infosys tussle with the founder, Narayana Murthy, the present CEO and MD Vishal Sikka has termed himself as “a warrior”. The reasons are not far to seek. Ever since his appointment, Sikka has been pursuing a strategy of employing the huge cash reserves (Rs. 30,367 crores in consolidated BS) to go on an exorbitant shopping spree to boost the value of his 178,195 stock options issued within two years. Coupled with liberal bonus issuances, Sikka has been trying to drive up Infosys’ share price. With so much at stake, it’s no wonder he calls himself “a warrior” out to rake in the animal spirits.

Talking to Time Magazine a few years back, Peter Drucker got to the heart of things: "I will tell you a secret: Deal making beats working. Deal making is exciting and fun, and working is grubby. Running anything is primarily an enormous amount of grubby detail work . . . deal making is romantic, sexy. That's why you have deals that make no sense." (From Warren Buffett's shareholder letter)

One of Sikka’s acquisitions, Panaya, has been a complete failure. Acquired on the brink of failure in March 2015 for a whopping Rs. 1,398 crores, the net assets of the company were only Rs. 47 crores implying a goodwill of Rs. 1,351 crores. This transaction would have been somewhat justified if Panaya was in a top-notch growth phase with substantial revenues. However, a look at Infosys’ annual reports for 2015 and 2016 belies any such conclusions. The revenues accruing are negligible and the profits are negative. For the year ended 31.03.2015, Panaya contributed 12 crores towards revenues and had a net loss of 6 crores. This gets worse in 2016 with a net loss of 67 crores. There is no mention of revenues for 2016. 

The link between Panaya and Sikka’s former employer, SAP, does bring into account a lot of questions. Panaya’s investors include Hasso Plattner Ventures. Hasso Plattner was the co-founders of SAP. Were the shareholders made aware of this obvious conflict of interest. It does seem that Sikka granted a huge lifeline to Hasso Plattner at the cost of Infosys shareholders. Even though the Infosys Annual Report mentioned that Panaya was incorporated in Delware, no SEC filing was found for it.

Infosys has substantially underperformed both Nifty (35%) and TCS (16%). Throwing away almost 5% of the consolidated cash balance for a company on the brink of collapse proved to be a game changer for Hasso Plattner. That same 5% could have been used for stock buybacks greatly boosting shareholder value.