Game on: L&T to mount hostile bid for Mindtree

Infrastructure major Larsen & Toubro (L&T) on Monday said that it has entered into a definitive share purchase agreement with Café Coffee Day (CCD) founder V.G. Siddhartha and his related entities Coffee Day Trading and Coffee Day Enterprises to acquire a 20.32% stake in Mindtree. L&T will buy this stake at a price of ₹980 per share, aggregating to about ₹3,269 crore.

Siddhartha, the single-largest shareholder in the Bengaluru-based information technology (IT) services firm, gets an exit from the company with the deal.

L&T has also placed an order with its broker to buy up to 15% of the share capital of Mindtree from the market, at a price not exceeding ₹980 per share, the company said in a late evening filing to the exchanges. With an intent to acquire majority stake in Mindtree, subsequent to these deals, L&T would make an open offer to buy an additional 31% stake in Mindtree at a price of ₹980 per share in cash, the company said, adding that Mindtree would remain an independent listed entity.

If the L&T deal goes through, it will acquire 66.32% of Mindtree for about ₹10,700 crore.

L&T said that it has sufficient financial flexibility to fund the entire transaction through its existing financial resources.

This acquisition is in line with L&T’s strategy of focussing on services and asset-light businesses to drive profitable future growth. The deal is expected to add to L&T’s IT services platform with a focus on digital and cloud solutions.

“This acquisition is part of our strategy to deliver industry leading IT services to our clients worldwide. This acquisition will allow L&T to further enhance shareholder value for both its own shareholders and Mindtree shareholders in the medium to long term,” said S.N. Subrahmanyan, CEO & managing director of L&T, the $18 billion conglomerate which has two subsidiaries, L&T Infotech and L&T Technology Services.

However, after the announcement of L&T’s hostile bid, Mindtree’s promoters, including Krishnakumar Natarajan (executive chairman), Subroto Bagchi (co-founder), Rostow Ravanan (CEO) and Parthasarathy N.S. (executive vice chairman and COO), issued a statement late on Monday opposing the hostile takeover.

“The attempted hostile takeover bid of Mindtree by Larsen & Toubro is a grave threat to the unique organisation we have collectively built over 20 years. Since we started the company in 1999, we have built a rock solid organisation that outperforms its peers in IT services, differentiates and innovates through digital, and consistently delivers strong financial results and favourable returns to our shareholders,” it said.

“A hostile takeover by Larsen & Toubro, unprecedented in our industry, could undo all of the progress we’ve made and immensely set our organisation back. We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders,” the statement noted, adding that “We believe that culture needs to be carefully created and nurtured over time, and can’t be bought and sold like any asset.”

The promoters of Mindtree flagged concerns over corporate governance and pointed out that they remain committed to their long-term vision of building an independent company and urged shareholders, employees and other stakeholders to continue opposing the takeover attempt.

Voting advisory firm Institutional Investor Advisory Services (IiAS) feels independent directors must provide objective guidance to the company’s shareholders on whether L&T’s open offer is in the company’s long-term interest.

“Mindtree’s board is set to meet to discuss a possible buyback—but a buyback is now moot. L&T’s acquisition of equity from the Café Coffee Day group, and the subsequent open offer does not require a shareholder vote—from neither Mindtree’s shareholders nor L&T’s shareholders. Mindtree’s shareholders need to decide whether to participate in the open offer and thereby support a change in control,” IiAS said in a statement.

The advisory firm pointed out that it was not necessary that Mindtree’s independent directors toe the line with the company’s promoters: they may have a different view. For example, in 2014, Essar Energy plc’s committee of independent directors had opposed the delisting offer made by the promoters, the Ruia family.

Mindtree, founded two decades ago, is one of the first venture capitalist-backed software services companies in India. With an illustrious team of 10 co-founders from Wipro, Cambridge Technology Partners and Lucent, Mindtree had witnessed rapid growth in its first 10 years. While it earned the reputation of a highly execution-centric company with a strong track record with clients, a solid team, and a focus on delivering work, it has not managed to leapfrog into the league of the top-tier Indian IT services companies.

Shares of Mindtree were down by 1.68% at Rs 946.35 in afternoon trade on the BSE on Tuesday, while shares of Larsen & Toubro were also down by 1.83% at Rs 1353.65. The sensitive index, Sensex, was marginally up by 0.22%.