UPDATE 1-Infosys shares fall on counterbid fears for Axon

(Recasts, updates share price)

By Sumeet Chatterjee

BANGALORE Aug 26 (Reuters) - Shares in Infosys Technologies (INFY.BO) gave up gains of more than 2 percent and ended lower on Tuesday after a London-based securities house said it could face a counter bid to acquire Britain's Axon Group Plc AXO.L.

India's second-largest software services exporter said late on Monday it had agreed to buy the British consultancy AXO.L for 407 million pounds ($753 million). [ID:nBOM170568]

The cash deal values Axon at 600 pence a share, a 19.4 percent premium over Friday's close of 502.5 pence.

Altium Securities said in a note on Tuesday in London it believed there was room for a counterbid closer to 700 pence as Axon continued to perform well and was widely recognised as a global leader in its field.

Traders said there were worries a bidding war could push up the cost of the acquisition and hurt earnings in the near term.

"In any bidding war a company ends up overpaying for an acquisition," a Mumbai-based analyst said.

Shares in Infosys ended down 0.3 percent at 1,697.60 rupees, after having risen as much as 2.2 percent in early trade. In comparison, the main BSE index .BSESN closed up 0.2 percent after falling as much as 1.1 percent earlier.

In London, shares in Axon were trading up 20 percent at 603 pence at 1020 GMT.

Analysts had earlier said the acquisition would give Bangalore-based Infosys access to new clients and help boost its presence in the fast-growing European market at a time when its key U.S. market is slowing.

"The deal looks very good from a long-term perspective," said Harit Shah, a sector analyst with Angel Broking in Mumbai. "It will turbo-charge their growth in Europe and give them access to a very good set of clients."

The all cash deal values Axon about two times its revenue in 2007, which was 204.5 million pounds, and 20 times its net profit of 20.2 million pounds. Last month, Infosys CEO Kris Gopalakrishnan told Reuters the company planned to cut dependence on the United States to about 40 percent from more than 60 percent now, as a slowdown in the world's largest economy hits outsourcing deals.

Infosys, which develops applications, designs supply chains and offers back-office services, counts ABN AMRO, Goldman Sachs and Philips Electronics among its more than 560 clients. Last month, Infosys, which the market values at $22.5 billion, reported a 21 percent rise in quarterly profit but warned of challenging times ahead as its major Western clients battle weakening economies. (Additional reporting by Tricia Wright in LONDON) (Editing by Ranjit Gangadharan)