Mindtree Calls Off Share Buyback Plan

The board of Mindtree Ltd. decided that it will not go ahead with the share buyback, which it had been mulling before Larsen & Toubro Ltd. mounted a Rs 10,700-crore offer to acquire a majority stake.

The information technology company has also decided to constitute an Independent Directors’ Committee to provide their “reasoned recommendation” on the offer by L&T for the consideration of shareholders, a stock exchange filing after the board meeting said.

The committee will be led by Apurva Purohit, the lead independent director, as chairperson and spokesperson. “The IDC will consider and evaluate all aspects of the unsolicited offer, taking into account all relevant facts, circumstances, data related to the company and industry and the interests of all stakeholders involved,” the filing said. “This committee will discharge the legal obligations placed on the independent directors under the prevailing regulations with respect to providing reasoned recommendations on the unsolicited offer by L&T.”

Mindtree, in a separate statement, also said L&T will conduct its open offer to acquire up to additional 31 percent stake between May 14 and May 27. The last date for upward revision of the offer price has been set as May 13. The IDC will have to give its recommendation to the shareholders by May 10.

The board of the IT company had communicated that it will consider a share buyback two weeks back amid reports of L&T being in talks to acquire the stake of Mindtree’s largest shareholder VG Siddhartha and his Coffee Day Enterprises.

Soon after, L&T put out a three-step offer to take control of the mid-sized IT firm by first buying buy the 20.3 stake in Mindtree from Siddhartha for Rs 980 per share, totalling Rs 3,269 crore. The construction company also intends to purchase an additional stake of up to 15 percent from the open market at up to Rs 980 per share, costing it up to Rs 2,434 crore. 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.

While L&T's management has maintained that the deal will be beneficial for shareholders of both the companies, Mindtree's founding promoters have continued to oppose the takeover. “We don’t see any strategic advantage in this transaction,” Mindtree Chairman Krishnakumar Natarajan said a day after L&T’s offer. “It could undo all the progress we have made.”

Analysts, too, have remained cautious over the hostile bid. “Attrition control and people management would be critical since hostile bids are uncommon in the professional services business as people are the key assets. These assets are not easy to manage in such situations,” according to Kotak Securities.

Agreed Investec. “There have been no such past instances of a hostile takeover in India for the IT sector and it’s important to note that the IT business is of relationships and execution by people,” the brokerage had said in a note.