Larsen & Toubro Ltd. employees work on a booster compressor process module, part of an offshore oil drilling platform, in Hajira, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

L&T Mounts Rs 10,700-Crore Hostile Takeover Of Mindtree

Engineering major Larsen and Toubro Ltd. seeks to buy a controlling stake in Mindtree Ltd. after it entered into an agreement with Coffee Day Enterprises founder VG Siddhartha to buy his 20.3 percent shareholding in the mid-sized information technology firm.

L&T will buy the 20.3 stake in Mindtree from Siddhartha for Rs 980 per share, totalling Rs 3,269 crore, according to its statement filed with stock exchanges. L&T also intends to purchase an additional stake of upto 15 percent from the open market, at upto Rs 980 per share, the statement said. That could cost it up to Rs 2,434 crore.

L&T Chairman AM Naik assured Mindtree coming under the L&T Group will be beneficial for all shareholders. “Strategically, we want to expand our services business,” Naik told BloombergQuint in an interview.

Watch the interview here:

L&T has also announced an open offer to shareholders of Mindtree to acquire another 31 percent at Rs 980 per share. That could cost it up to Rs 5,027 crore depending on the response to the offer.

This three-step transaction will give L&T between 20.3 to 66.3 percent of Mindtree at a total cost of up to Rs 10,730 crore.

“This acquisition is part of our strategy to deliver industry leading IT services to our clients worldwide,” L&T’s Chief Executive Officer and Managing Director SN Subrahmanyan said in the statement. “Mindtree has a well established management team which has earned the respect of the market in terms of its service offerings and business practices. 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."

L&T Mounts Rs 10,700-Crore Hostile Takeover Of Mindtree

MindTree To Remain Independent Entity

Mindtree will continue to remain an independently listed entity on the stock exchanges after the takeover and L&T would extend support to its business going forward, the statement said.

“Mindtree will benefit from access to larger client base and wider product offerings under a common parentage giving higher returns to shareholders of Mindtree.”

Mindtree promoters, N Krishnakumar, Subroto Bagchi, NS Parthasarathy, Rostow Ravanan, own close to 13 percent of the company. The first indication that they were not in favour of such a takeover, came on Friday when its board said it would consider a buyback of shares at the board meeting. on March 20.

Within hours of L&T’s formal announcement, Mindtree’s promoters condemned the move. “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,” a joint statement by Natarajan, Bagchi, Parthasarathy and Ravanan said.

We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders.
Mindtree Promoter Statement (March 19, 2019)

The promoters said they remain committed to building an independent organisation. “We believe it’s in the best interests of our shareholders, Mindtree Minds, and our organisation overall to continue opposing this takeover attempt.”

Also read: Mindtree Needs A White Knight To Replace Siddhartha, Co-Founder Ashok Soota Says 

Earlier today, former chairman and co-founder of Mindtree Ashok Soota told BloombergQuint the company needs a new white knight to help fend off any hostile takeover. “L&T seems to have the financial muscle to go through this deal,” said Soota. “Mindtree would need to bring in another white knight, and I’m sure efforts are behind it because the buyback will accomplish only a small percentage.”

"Culture is a real issue. So many acquisitions fail because of cultural incompatibility, differences in points of view and so on and just the culture of organisations," Soota said. "If L&T were to succeed and go ahead then that becomes one of the challenges in recognising what can be done to ensure success in spite of fact that, the there are differences in culture but that exist in all organisations."

Another co-founder Subroto Bagchi expressed his apprehensions over the reports of a takeover by L&T. He quit as the head of Odisha's Skill Development Authority saying he was coming back to "save the company" from those "who have arrived with bulldozers and saw chains to cut it down".

Bagchi wrote on Twitter that Mindtree was not designed as an asset to be bought and sold.

Also read: Mindtree Co-Founder Subroto Bagchi Returns To ‘Save The Company’