On Tuesday, March 26, Mindtree’s board of directors decided to set up an independent review committee; reason: to evaluate Larsen & Toubro’s (L&T’s) proposal for a takeover.
Mindtree has stopped pursuing the original idea of a share buyback proposal, where it would purchase shares back from current investors to retain majority control.
Although Mindtree initially considered blocking L&T’s takeover attempts, it has since changed its mind.
In a filing to the Bombay Stock Exchange (BSE), the Mindtree board said it has established a “committee of independent directors” to chart a course for the company moving forward.
“… the board has decided to immediately constitute the committee of independent directors (IDC) in the interest of all stakeholders to provide their reasoned recommendation in respect of the unsolicited offer by L&T,” said Mindtree.
This independent director committee will give Mindtree a recommendation on the L&T deal by May 10.
The Mindtree board will also likely sit down for a meeting with L&T in the coming weeks.
L&T’s ‘hostile takeover’
On March 19, L&T’s ‘hostile takeover’ or an unsolicited attempt to gain control of the company began. L&T did this in three ways, first by buying V G Siddhartha’s 20.32% stake in the company. Siddhartha has been investing in Mindtree for 10 years; his company, Coffee Day Trading Limited, is its single largest shareholder.
L&T will also buy 15% of Mindtree’s open market capital. This gives it a 35.32% stake in Mindtree.
The third method L&T will use is to offer to purchase an additional 31% from Mindtree’s public shareholders and gaining a massive 66.32% equity in the company.
Mindtree first opposes L&T’s bid
Mindtree vehemently opposed L&T’s ‘hostile takeover’. It issued a strong statement, especially because L&T bypassed the Mindtree board and went straight to the company’s shareholders.
“A hostile takeover by Larsen & Toubro, unprecedented in our industry, could undo all of the progress we’ve made and immensely set our organization back. We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be destructive for all shareholders,” said the company.
Two days ago, Mindtree CEO Rostow Ravanan posted a statement from Nalanda Capital, the company’s largest public market investor; it explained why the L&T bid is a bad idea.
Nalanda Capital essentially says we needn’t fix what isn’t broken; this means that Mindtree is a thriving company on its own and does not need anyone to take it over. It adds Mindtree’s current owners are “proven, passionate, and committed” who see no reason to risk their success for such a merger.
Mindtree co-founder Subroto Bagchi said Mindtree was not an asset to be bought and sold, but a “national resource”. Bagchi quit his government job to manage the Mindtree-L&T issue.
However, Mindtree has changed its stance by rejecting the share buyback proposal, and effectively cutting any competition to L&T’s bid.
Takeover might be opportune for India
In the BSE filing, Mindtree said L&T’s takeover was initiated to “grow the revenue and profit of its asset light services business portfolio, thereby increasing the consolidated return on equity and further diversifying the consolidated group revenue and profits into the information technology and technology services areas.”
Simply put, L&T is trying to acquire Mindtree so that the two can together offer a range of services in a centralised manner to clients all over the world. L&T intends on growing India’s information technology industry.
Together, L&T and Mindtree have 300 + customers in 47 different countries. As one, they could become a giant in the IT sector worldwide.
In its filing, Mindtree also concedes that the L&T takeover will be profitable to both companies’ shareholders in the medium to long term. This means that Indians who have invested in the company seek to benefit from the merging of operations, as well.
Rhea Arora is a Staff Writer at Qrius
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