Heavy engineering major Larsen and Toubro (L&T) on Monday said that it has entered into a definitive share purchase agreement (SPA) with VG Siddhartha and his related entities — Coffee Day Trading and Coffee Day Enterprises — to acquire a 20.32% stake in Mindtree at Rs 980 per share, aggregating to approximately Rs 3,269 crore.
In a late evening filing to stock exchange, L&T said, “Immediately following the filing of the public announcement, L&T has placed an order with its broker for on-market purchase of up to 15% of share capital of Mindtree at a price not exceeding `980 per share.”
The company further said, “Pursuant to execution of the share purchase agreement, aforementioned market order for share purchase and with the intent to acquire majority stake in Mindtree, L&T has announced an open offer as per the Sebi’s takeover regulations to the public shareholder of Mindtree to purchase up to an additional 31% of the outstanding shares of Mindtree at a price of `980 per share in cash.”
If the SPA and the open offer goes through, L&T’s stake in Mindtree will stand at 66.32%, giving it the controlling stake in the company. In a separate filing, Mindtree also said it has received L&T’s proposal for an open offer representing 31% of the voting share capital.
L&T further informed the exchanges that Mindtree would remain an independent listed entity, L&T would extend support to Mindtree in its business going forward.
“Mindtree will benefit from access to larger client base and wider product offering under a common parentage giving higher returns to shareholders of Mindtree,” the L&T filing said.
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The price of `980 a piece will be about a 2% premium to Mindtree’s Monday’s closing share price of `962.50 on the BSE. The share price closed up 1.74% on Monday.
Mindtree is a technology consulting and services company that began in 1999. Currently, it has a market capitalisation of `15,806 crore.
During FY18, Mindtree’s net profit stood at `570 crore up 37% over a year ago, while the revenues at `5,463 crore, were up 4.33% versus FY17. The company’s Ebitda (earnings before interest, tax, depreciation and amortisation) was up 3.34% at `741 crore in FY18.
While media reports of L&T looking to make a hostile takeover attempt on Mindtree were doing rounds for the past two months, last Friday, Mindtree informed the exchanges that its board will meet on March 20 to consider the proposal of a buyback of shares of the company. The move was seen as an attempt by the management to prevent any hostile takeover bid of the company.
Later on Saturday, Krishnakumar Natarajan, chairman and co-founder Mindtree had reportedly written to the L&T board against hostile takeover of Mindtree and said that it had alarmed stakeholders, institutional investors, customers and even employees. Natarajan also argued that several large IT services providers had failed to integrate acquisitions and said a merger between Mindtree and L&T Infotech would be value destructive for all.
Later on Sunday, Mindtree co-founder and board member Subroto Bagchi said he had quit as chairman of the Odisha Skill Development Agency to help Mindtree steer through the current takeover crises.
Bagchi tweeted, “An imminent threat of hostile takeover of Mindtree has made me to resign from the Government to be able to go, save the company. I must protect the tree from people who have arrived with bulldozers and saw chains to cut it down so that in its place, they can build a shopping mall.”
He also said that, Mindtree has not been designed as an “asset” to be bought and sold. It is a national resource. It has a unique culture that humanises the idea of business. It sets the standards of corporate governance. I need to be there in its time of difficulty. Hence the hard decision to return.
While L&T did not disclose its future plans with regards to Mindtree, FE had reported quoting banking sources on March 2, 2019 that if L&T Infotech acquires Siddhartha’s stake in Mindtree, they may consider initiating an open offer for 31% of the firm. Following this, L&T Infotech may eventually consider a merger between Mindtree, L&T Technology Services and itself.
L&T Technology Services, part of the L&T Group, is a listed entity and has expertise in engineering design, product development, smart manufacturing and digitalisation. It has a market capitalisation of `15,504 crore, according to the BSE as on Monday.
L&T Infotech is a technology consulting and digital solutions company that claims to have operations in 30 countries, according to its website. It was founded in 1997 as a subsidiary of Larsen & Toubro. The company has a market capitalisation of Rs 27,289 crore, according to the BSE on Monday.
“There are synergies between the companies and the three firms combined will form an entity with considerable size and capabilities,” an investment banker said.
Siddhartha was also in talks with private equity firms like KKR, Baring Private Equity Asia and ChrysCapital.
Meanwhile, according to reports the founding promoters led by Natarajan, Subroto Bagchi, NS Parthasarathy and Rostow Ravanan, who together control 13.32% of the company, have been holding talks with Baring PE Asia, Chrys Capital and KKR, to acquire Siddhartha’s shares so that they continue to hold the reins.