We lawyers love disclaimers, and I am going to start this piece by making a rather important one – I haven’t actually read the letters/emails reportedly written by two whistleblowers to the SEBI (they are not available anywhere in the public domain yet), and am only offering my views and reactions in this piece based on the supposed contents of those letters as reported by prominent newspapers and news websites.

Also, while the letters/emails reportedly written by the two whistleblowers to the SEBI (the “Whistleblower Letters” – yes, we lawyers love defined terms too!) raise several points, the one that I am going to deal with in this piece (as the title suggests) is the question of whether the Panaya acquisition was done by Infosys at terms so inconsistent with market practice that the said whistleblowers found it necessary to question the integrity of the entire Infosys Board by suggesting that the high severance payout to former CFO Rajiv Bansal was “hush money”, ostensibly to buy his buy-in for the Panaya deal.

According to the press reports, one of the key complaints raised for the SEBI’s consideration in the Whistleblower Letters is the question of why and how the Infosys Board could approve the acquisition of Panaya at such a high premium to what Panaya was actually worth. The main data point on which this complaint appears to be founded is that the deal valued Panaya at $ 200 million, or a 25% premium to Panaya’s Series E fundraise from Israel Growth Partners (“IGP”) which had concluded barely a month prior to the announcement of the Infosys-Panaya deal. I must say, I was truly astounded when I read that THIS was the crux of a whistleblower complaint to the SEBI accusing the Infosys Board of poor governance and potentially, of lack of integrity!

Firstly, a company’s valuation being raised by 25% from the last funding round even in a short period of 1 month is hardly eyebrow-raising in technology deals – not even amongst non-internet/non-consumer companies. There are numerous examples of deals being sewn up at valuations far higher than the 25% premium that Infosys paid for Panaya since the IGP round.

Silicon Valley based AppDynamics did its last fundraise at a valuation of $ 1.9 billion. In December, 2016, it announced that it had filed a Form S-1 with the SEC to conduct its IPO. At an estimated $ 2 billion valuation, it was billed to be the largest tech IPO in a long while, and as such, generated a lot of market interest. Well, as we know, that IPO was not to be, as in January, 2017, AppDynamics shocked the world by announcing that it had agreed to be acquired by Cisco for $ 3.7 billion! Put another way, Cisco paid AppDynamics shareholders almost TWICE the anticipated valuation that the IPO would have given AppDynamics! If I were to paraphrase that in terms of the reported complaints in the Whistleblower Letters, “Cisco paid a price that valued AppDynamics at an almost 100% premium to its last recorded value of barely a month ago”. I don’t see anyone complaining that Cisco overpaid or accusing its Board of poor governance or negligence? I could go on and cite several other examples, but that’d only make this a very lengthy post and unnecessarily so.

The other important point that the reported allegations in the Whistleblower Letters totally miss is that a strategic buyer who is seeking to acquire a controlling stake almost always has to pay a half-decent control premium. No company that has successfully raised a Series E fundraise just a month ago is even going to consider selling itself to anyone that doesn’t offer at least a 25% premium! The Cisco Board was ready to pay a 100% premium over the anticipated IPO valuation of the AppDynamics IPO because they saw the strategic fit and value in that acquisition. Why is it that the Infosys Board has to be judged so harshly over a 25% premium for a controlling stake in a company that it clearly saw synergies with?

One more issue that the Whistleblower Letters have reportedly raised is that there was certain public information available that suggested that “all was not well at Panaya”. The news reports go on to suggest that the Whistleblower Letters were alluding to the fact that Panaya had undertaken a restructuring exercise in 2013 and 2014. Clearly, the Whistleblower Letters are contradicting themselves on this count, as on the one hand, they are pointing to Panaya raising funding from IGP at a $ 150 million valuation barely a month prior to the Infosys deal, and on the other, suggesting that “all was not well at Panaya”. If all was so badly not well, how would Panaya have managed to raise a Series E round just a month prior?

Last, but not the least, I am wondering why the authors of the Whistleblower Letters would choose to write a complaint to the SEBI about the Panaya deal now, after the passage of almost 2 years since the deal! Why not at any time sooner?

Logical questions, these? I would love to have your views.