Will Continue To Oppose L&T’s Takeover Attempt, Mindtree Promoters Say

Mindtree’s promoters would not have any problems with shareholder VG Sidhhartha selling to any other entity which didn't have strategic intent, they said today.

“If anyone else would have purchased the stake, we might not have the same reaction.”

In the meantime, Mindtree will work on convincing L&T to stop the takeover attempt, they said.

• Independent directors will set up committee to evaluate L&T's proposal on its merits
• Independent directors have to make a recommendation to shareholders in light of the open offer
• Buyback matter will come up before the board tomorrow
• Promoters do not want to exit
• Shareholder Nalanda is supporting us

Mindtree’s promoters posed five questions to L&T, while saying they will continue to oppose the takeover attempt.

1. L&T has mounted India IT's first ever "hostile takeover". Is this the example that L&T wants to set?
2. Why can't you build a technology business, without decimating another organisation?
3. Our customers choose us for our unique culture, they may take business elsewhere. Then, you would have demolished shareholder value for both companies. Is that the right thing to do?
4. Our people have signed up for a mission, not just a salary. Take their mission away, and they will go. What would you be left with?
5. If companies like you behave with extreme hostility to first generation entrepreneurs, what message are you giving to startups in the country?

Mindtree will continue to oppose L&T’s takeover attempt, said Mindtree’s Chairman Krishnakumar Natarajan in a press conference today.

“We don't see any strategic advantage in this transaction,” he said adding that the “unexplainable” transaction will be harmful for the tech firm and its ability to deliver shareholder value.

Competition Commission is the only approval L&T requires in India, Raman said, adding that it is expected to come through in 30-45 days.

• There are some overseas approvals we need because these companies operate globally.
• Two relatively small companies are coming together, so it's not likely to disrupt the competitive landscape.

It is unclear as to what chunk of Mindtree shares will L&T will end up with, Raman said, adding that it depends on the response to the open offer.

• We can't buy or trade in Mindtree stock until we get the necessary approvals.
• Over and above VG Siddhartha's 20 percent, we need to go for an open offer or purchase from open market, to increase our stake.
• Don't know what the response will be for the open offer, market dynamics will play out.
• We have outlined a path toward 66 percent stake in Mindtree.

• L&T's balance sheet has about Rs 15,000-16,000 crore cash, which is being invested in temporary treasury products, earning post tax returns of 5 percent.
• Mindtree transaction does not dilute return on equity; as it will be RoE neutral to begin with.
• Once synergies play out, the transaction will become RoE accretive

Markets and developments will decide when, if at all, Mindtree and L&T Infotech can be combined, not some preconceived speculative timeline, L&T’s Chief Finance Officer R Shankar Raman said while responding to BloombergQuint’s query at the conference.

• Both companies are about a $1 billion each, at this stage there's mininal scope for conflict, and we see enough headroom for growth.
• Even the few clients that are common, both companies are working at different ends; if anything there will be synergies.
• When they reach $5 billion each, they could possibly start to look at each other's turf.
• Doing anything on an artificial timeline, will destroy shareholder value.
• One of the primary reasons we decided to keep the entities separate is to protect interests of minority shareholders.

The Rs 980 per share offer price was arrived at by taking the six-month weighted average price and adding a premium to it, the L&T President said.

L&T will buy the 20.3 stake in Mindtree from Siddhartha for Rs 980 per share, totalling Rs 3,269 crore, according to its statement filed with stock exchanges. L&T also intends to purchase an additional stake of upto 15 percent from the open market, at upto Rs 980 per share, the statement said.

L&T has also announced an open offer to shareholders of Mindtree to acquire another 31 percent at Rs 980 per share.

L&T will continue to pursue the buyback option, despite the setback faced, but the key objective is to enhance shareholder value.

Mindtree is a company with good value, employees, technical skills, Subrahmanyan said, and investing into it will increase this shareholder value.

L&T is making the investment through its core company and not its information tech company since it would have had to leverage L&T Infotech to do so, the company president said.

L&T Infotech is predominant in banking, whereas Mindtree focuses on areas like retail and hospitality, he said. “Our intent is to keep both of them separate.”

• L&T's fundamental approach is to keep businesses as verticals, allowing CEOs to bring in high focus, clarity & objectivity
• L&T Infotech is run independently, is one of the best performing IT companies.
• L&T Tech is again run as independently as possible.
• L&T Infotech is predominant in banking, insurance etc, whereas Mindtree focuses on areas like retail and hospitality.
• Culural value systems are broadly the same, but both have different backgrounds.

Subrahmanyan assured shareholders of both the companies that all steps being taken are done so with love and consideration. While the emotions of the promoters are understandable, It was VG Siddharatha who approached L&T in order to sell off his shares and if they hadn’t bought them, someone else would have, he said.

An investment in Mindtree makes sense for L&T and despite the emotions involved, “business is business”, he added.

The management of Mindtree Ltd. had approached L&T a few years ago, said SN Subrahmanyan, president of Larsen & Toubro at the press conference today. At that time, L&T was not keen on a deal since it was expanding on other fronts, he said.

Here are the highlights of what he said:

• We have been giving more of a push to the services business over the last few years
• The inherent nature of services businesses is that they are more profitable
• The management of Mindtree had approached us a few years ago

Independent directors of Mindtree Ltd. must provide objective guidance to shareholders of the the Bengaluru-based technology firm on whether L&T’s open offer is in the company’s long-term interest, proxy advisory firm Institutional Investor Advisory Services India Ltd. said in a note.

Investors may not be in the position to understand all the nuances, the note said, adding that if the company's leadership and key staff leave the company with key clients upon a takeover, it may be damaging.

The advisory firm said that given the nuances of these issues, the independent directors are best placed to articulate stand on the several soft issues that characterise this transaction.

"It is not necessary that Mindtree’s independent directors tow the line with the company’s promoters,” IiAS said.

Mindtree has four Independent Directors - Akshay Bhargava, Apurva Purohit, Bijou Kurien and Milind Sarwate - on its board.

Both L&T and Mindtree are scheduled to hold separate press conferences today.

L&T’s conference is expected to begin at 11:30 a.m while Mindtree’s is slated to begin at 2:45 p.m.

L&T Chairman AM Naik assured Mindtree coming under the L&T Group will be beneficial for all shareholders. “Strategically, we want to expand our services business,” Naik told BloombergQuint in an interview.

The Indian tech company is now going to consider a buyback at its March 20 meeting, according to an exchange filing. Mindtree had cash worth Rs 162 crore, as of December 2018, according to its filings.

It also had investments worth Rs 811 crore which can be used for the potential buyback.

Read more.

Subroto Bagchi, one of the founding members of Mindtree Ltd., resigned as the head of Odisha's Skill Development Authority to return to the information technology company in Bengaluru.

He announced the resignation on late Sunday night on Twitter, saying that he must protect the company from the people trying to destroy it.

Within hours of L&T’s formal announcement, Mindtree’s promoters condemned the move. “A hostile takeover by Larsen & Toubro, unprecedented in our industry, could undo all of the progress we’ve made and immensely set our organisation back,” a joint statement by Natarajan, Bagchi, Parthasarathy and Ravanan said.

Mindtree Ltd. needs a new white knight to fend off any hostile takeover, co-founder Ashok Soota said amid reports that Larsen and Toubro group is looking to acquire stake from single-largest shareholder VG Siddhartha.

Soota, former chairman of mid-sized software services provider, had exited the company by selling shares in the Bengaluru-based company to Siddhartha’s Coffee Day Group. Siddhartha has been a white knight for nine years and investor for 10 years, according to Soota.

Read more.

Engineering major Larsen and Toubro Ltd. seeks to buy a controlling stake in Mindtree Ltd. after it entered into an agreement with Coffee Day Enterprises founder VG Siddhartha to buy his 20.3 percent shareholding in the mid-sized information technology firm.

L&T will buy the 20.3 stake in Mindtree from Siddhartha for Rs 980 per share, totalling Rs 3,269 crore, according to its statement filed with stock exchanges. L&T also intends to purchase an additional stake of upto 15 percent from the open market, at upto Rs 980 per share, the statement said. That could cost 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.

This three-step transaction will give L&T between 20.3 to 66.3 percent of Mindtree at a total cost of up to Rs 10,730 crore.

Read more.