Infosys’ AGM to be a turbulent affair over reports of founders’ exit

The Infosys annual general meeting later this month will likely be a turbulent affair, with media reports suggesting that the company’s founders are looking to offload their 13% stake in the company, ostensibly because they are fed up with a management that doesn’t listen to them.

Both sides -the management and the founders -strenuously denied that there was any such exit plan, curbing the decline in the stock on Friday to 1% after it dropped about 3% in early trade. . 948.65 on the Bombay It closed at ` Stock Exchange.

For Infosys, the news comes at a bad time. The company’s stock, already under pressure due to weak prospects in the IT sector, will be hurt even more, analysts said. The Bengaluru-headquartered company has said previously that the constant barrage of news about the founders and their unhappiness with how the company is run has curbed some of its growth.

“If this is true, it will be an overhang on the stock because a huge amount of supply will hit the market,” Ambit Capital analyst Sagar Rastogi told ET.
Infosys promoter NR Narayana Murthy rejected the report. “I have denied it and there is nothing more to add,” he told ET in an emailed reply.

Infosys said Friday that such reports could hurt the company.“The company further reiterates that it has no information on any such development. We would like to appeal to the media not to fuel such speculative stories as they are likely to harm the interests of the company and all its stakeholders,” the company said in a statement.
Experts said the reports ahead of the June 24 AGM will intensify pressure on Infosys management, which has been caught up in a bruising battle on corporate governance with the promoters.A top Infosys official told ET in March that investors and founders first brought up the issue of former CFO Rajiv Bansal’s severance ahead of the AGM last year. Bansal’s purportedly outsized severance was the flashpoint. Murthy had said the Rs 17-crore payout, since suspended, could have the appearance of hush money.
Murthy is regarded very highly by the company’s retail investors and a suggestion that he would exit the company will not be taken well.

However, when Vishal Sikka was appointed in 2014, it had been expected that the promoters would sell their stakes over time, argued Shriram Subramanian, founder of shareholder advisory InGovern.

“Of course, at the AGM, shareholders may raise questions in this regard. Infosys has not yet announced any specific buyback program with a clear path on how they intend to return the cash to shareholders.

“In any event, buybacks would have to be proportionate and wouldn’t be able to absorb this size of equity shares,” said Subramanian.

“The Infosys promoters would necessarily have to offload the shares, in parts, over a period of time,” Subramanian said.

Another advisory firm said the exit of promoters might ac tually be positive for the company.

“It would be a psychological divorce.There are no emotions attached with promoters anymore.

“It would be positive in the long term because all the nonsense that has been going on -the questioning of the management by the promoters -will at least stop,” said JN Gupta, managing director, Stakeholders Empowerment Services.

Once this happens, the board and the management will be able to focus on productive work rather than fighting the allegations and counter allegations, he said.
The promoters -who currently do not have any board representation -can choose to be reclassified as non-promoters to offload shares.

“With the promoter classification, Infosys founders have certain liabilities but no ability to control outcomes as they are not involved with the running of the company,” said Amit Tandon, managing director of IiAS. “They can get reclassified as non-promoters to exit with more flexibility.”

Infosys was one of the reasons that the Securities and Exchange Board of India (Sebi) drew up promoter reclassification rules, InGovern’s Subramanian pointed out.