Engineering conglomerate Larsen and Toubro (L&T) on Monday announced that it
signed the deal for 20.32 percent stake of Mindtree held by Cafe Coffee Day founder VG Siddhartha, making this the first hostile takeover in the history of the IT sector. Shares of Mindtree and Larsen and Toubro fell over 1 percent on Tuesday after the deal announcement. At 11:15 AM, Mindtree was trading with a 1.75 percent loss at the NSE while L&T was trading with a 2.02 percent loss at the stock exchange.
A hostile takeover is the acquisition of one company by another by purchasing the target company's share directly from shareholders, bypassing the target company' s management.
Why VG Siddhartha is keen on selling his stake in Mindtree
The news of VG Siddhartha looking to sell his stake in Mindtree has been buzzing for the last few months. The reason for Mindtree's 'White Knight' investor to sell his stake, according to media reports, could be because of the Rs 300 crore he owes to income tax authorities or he may be under pressure as his investment firm Sivan Securities is grappling with debt.
L&T has signed an agreement with V G Siddhartha for the acquisition of 33,360,229 shares of MindTree at a price of Rs 980 per share for an aggregate amount of Rs 3,269 crore.
What Mindtree promoters want
The promoters and founders of the company, after the announcement,
unconditionally opposed L&T's 'hostile takeover' bid.
"A hostile takeover by L&T, 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 value destructive for all shareholders," the promoters' statement said.
The promoters and founders, namely Krishnakumar Natrajan, the executive chairman and co-founder, and Rostow Ravanan, the CEO, even before the announcement,
had sent a letter to L&T expressing their disregard for the deal.
"Such news has alarmed the various stakeholders of Mindtree, including the institutional investors, clients and customers, and employees – many of whom have expressed to the management unequivocally that they would not like to be part of an organisation that is culturally perceptibly different from Mindtree, or where there are minimal revenue and cost synergies,"
the letter had read.
The news reports, before the deal was announced, had also alarmed
Subroto Bagchi, one of the co-founders of Mindtree, to resign on Sunday as the head of Odisha Skill Development Authority. To avert the acquisition, Mindtree scheduled a share buyback proposal meeting on March 20.
Ashok Soota, another co-founder of Mindtree, in an interview with CNBC-TV18, said the share buyback plan will not be able to dent L&T's effort to acquire Siddhartha's stake in Mindtree. Soota said that he does not see the shares buyback achieving much from founders' standpoint, adding that it looks only a part of the financial strategy. Why L&T wants Mindtree's stake
The company, in its investor presentation, stated that the acquisition of Mindtree will add significant scale to the group's hi-tech, CPG, retail and travel verticals. It reasoned that Mindtree has "strong verticals and fast-growing offerings".
Stating that full suite of digital capabilities, top-tier clients and large digital talent pool are Mindtree's key strength, it said that the acquisition will enhance the contribution of services to the overall business portfolio.
L&T is eyeing to buy up to 66 percent stake in Mindtree for around Rs 10,800 crore, it said in the presentation document.
AM Naik, L&T's chairman, said that he did not see any hostility in L&T’s offer to Mindtree and added that the group has tried to be co-operative with Mindtree promoters.
“We are not buying but investing in Mindtree”, said Naik, adding that the open offer will not be for more than 4-5 percent of Mindtree's equity.Naik said that L&T is aiming to be among the top seven IT players in the country.