VG Siddhartha’s near-21% stake in IT services firm may get around Rs 100 per share less if he offloads the stake without the backing of the management, say investment bankers.
Cafe Coffee Day founder VG Siddhartha’s near-21% stake in IT services firm Mindtree could fetch a much lower price if the transaction does not have the blessings of the Mindtree management, persons familiar with the developments indicated. Investment bankers explained to FE that it was possible Siddhartha might get around Rs 100 per share less if he offloaded the stake without the backing of the management. Nonetheless, the transaction is likely to be closed by the end of January, the banker indicated.
Mindtree closed Monday’s trading at Rs 880 apiece, down 0.77% over Friday’s close on the BSE. Siddhartha’s stake could be sold at a somewhat steep discount, bankers said given the urgency of the transaction.
Bankers are also of the view that even if an investor picks up the 21-odd% stake in Mindtree from Siddhartha without the management’s blessings, it is possible to further increase the stake through purchases from small shareholders. The public holding in Mindtree, excluding Siddhartha’s stake, was 66.27% as of December 2018.
Siddhartha and entities controlled by him hold about 20.41% in Mindtree. The founder of CCD is understood to be in talks with several strategic and private equity players like L&T Infotech, KKR India, Baring Private Equity Asia and Fairfax.
According to some media reports, L&T Infotech (LTI) had offered close to `1,150-1,200 per share for the stake in December, but wanted the support of the management for the deal to go through.
However, Mindtree promoters —N Krishnakumar, Subroto Bagchi, NS Parthasarathy, and Rostow Ravanan — are reportedly not too keen on the stake sale. As of December 2018-end, the four promoters cumulatively hold an 8.96% stake in the firm, according to the BSE.
In an email response, Mindtree responded saying that as a matter of policy, the firm does not comment on speculations.
On the Q3FY19 earnings call, Rostow Ravanan, CEO at Mindtree, had stated that the management team at Mindtree is completely committed, passionate and completely enjoying what it was doing when asked to comment on media reports pertaining to the stake sale.
“I think we are totally, totally focused on making Mindtree even stronger, making MindTree a memorable company. As far as the plans of shareholders go, we are not privy to it. It is their priority and their prerogative as to make their own financial decisions,” Ravanan said in the earnings call according to a transcript on Bloomberg.
Earlier, KKR had reportedly offered `850 per share to take a majority stake in Mindtree. The private equity firm reportedly wanted to buy out the stake held by Siddhartha and his companies first, followed by another purchase of the promoters’ stake with special control on the Mindtree board. Baring PE Asia had reportedly offered a higher price of `900 per share with no special conditions.
In March, 2018, Siddhartha had stepped down from the board of Mindtree to focus on Coffee Day. However, the banker FE spoke to said that despite these issues, the stake may still evince interest from potential buyers if the price is attractive. “It is all a function of the price. Regardless of the reports that indicate investors may not want to pick up the stake without the management’s support, the transaction may go through if the price is attractive. It is likely that the deal may close before the end of the month,” said the banker.
Email questions sent to LTI and Coffee Day group remained unanswered till the time of going to press.
LTI reported that artificial intelligence (AI) and cognitive was the only service line witnessing a sequential revenue decline of 1.9% quarter-on-quarter (QoQ) in constant currency (CC) terms. Analysts believe it makes sense for LTI to buy a stake in Mindtree.
In January 2019, LTI made a strategic acquisition of Ruletronics. This was its third acquisition since the company went public in 2016. Analysts said LTI uses acquisitions to address white spaces in offerings and to augment digital capabilities. In the past, LTI acquired Augment IQ for its analytics capabilities while the acquisition of Synchordis, a Temenos specialist, helped LTI expand its core banking implementation capability.