Infosys saga explained vishal sikka's exit and erosion of shareholder value

Infosys saga explained: Vishal Sikka's exit and erosion of shareholder value The overhang on the stock will persist unless the fundamental issues are tackled well

The price of Infosys Technologies' stock last week plummeted 10 per cent to Rs 923, thanks to the unsurprising exit of Vishal Sikka as the chief executive and managing director of the company. Worse, since his exit has been shrouded in controversies, the confidence that Sikka had built up in the stock since his appointment three years ago has also thinned significantly.

The exit was indeed inevitable and that is clear from the fairly incisive questions raised by co-founder N R Narayana Murthy – now in the public domain. The questions dwell upon Sikka, the board’s conduct, the Panaya acquisition, and the severance package given to former chief financial officer Rajiv Bansal. The governance issues raised by Murthy give an impression that the board had not acted fairly on the whistleblower report highlighting malpractices during Sikka’s regime.

In questioning the processes followed by the company’s board, Murthy represents himself and "some wellmeaning shareholders" who consider the findings of the independent investigation dubious.

ALSO READ: Murthy Vs Sikka: How corporates can avoid Infosys-like board-founder conflict

Given that the rift had started emerging a few months ago, Sikka's eventual exit was hardly a surprise. However, a market discomfiture compelled the company to announce a Rs 13,000-crore buyback plan, comprising the purchase of 4.92 per cent outstanding shares at Rs 1,150 apiece. The offer encompasses the entire amount committed for shareholder returns after the March quarter of 2016-17. Infosys has also committed to making a payout of up to 70 per cent free cash flows by way of dividend starting 2017-18.

But these dole-outs might not be enough to reverse the crisis. The overhang on the stock will persist unless the fundamental issues are tackled well. There are several aspects to what could evolve going forward.

First, in the immediate term, there will be legal fallouts. US-based firms like Rosen Legal and Bronstein and Gewirtz & Grossman have initiated an investigation of potential securities claims on behalf of Infosys shareholders (ADR is 16.69 per cent of total outstanding shareholding). These draw from the allegations that Infosys might have issued materially misleading business information to the investing public.