Mumbai: The Competition Commission of India (CCI) on Friday approved Larsen and Toubro Ltd's (L&T's) takeover bid for Mindtree Ltd. The L&T-Mindtree deal, which will see the diversified engineering conglomerate purchase up to 66.32% stake in the Bengaluru-based IT services firm for around ₹10,700 crore, is the first hostile takeover bid in the Indian IT industry. Two persons with direct knowledge of the CCI approval for the L&T-Mindtree deal confirmed the development.
The CCI approval was crucial as L&T has its own IT services business in L&T Infotech Ltd, whose market capitalization is almost twice that of Mindtree. Their combined valuation, as on Friday, stood at ₹46,000 crore—a little higher than half of Tech Mahindra Ltd's market cap of ₹76,623 crore.
The three firms are part of the mid-tier of the Indian IT industry, the top rung of which consists Tata Consultancy Services Ltd (TCS), Infosys Ltd, Cognizant Technology Solutions Corp., HCL Technologies Ltd and Wipro Ltd.
“The CCI approval came in record time. Usually, CCI approvals take more than 21 days. This shows the confidence of the regulatory authorities in the deal," said one of the two persons cited above, requesting anonymity.
The L&T-Mindtree deal now needs approvals of anti-trust authorities of Germany and the US as Mindtree has clients in those countries.
On 18 March, L&T announced its plan to launch an open offer to buy an additional 31% in Mindtree after agreeing to purchase Cafe Coffee Day founder V.G. Siddhartha's 20.32% stake in the firm for ₹3,269 crore.
L&T also said it would buy 15% stake in Mindtree from the open market.
The three-part deal will see L&T buy up to 66.32% in Mindtree for around ₹10,700 crore at ₹980 per share.
L&T’s open offer for Mindtree will launch on 14 May and close on 27 May.
L&T had on 18 March said it planned to keep Mindtree "independent for now" but, in an investor presentation the next day, said it may consider a merger of Mindtree and L&T Infotech once their combined revenue—along with that of group firm L&T Technology Services Ltd—crosses the $5 billion mark.
In its offer documents, L&T has said that the purpose of acquiring control of Mindtree is mainly to grow the revenue and profit of its asset-light services business portfolio and increase the consolidated return on equity.
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On 2 April, Mindtree’s four-member independent directors’ committee appointed law firm Khaitan and Co. and brokerage ICICI Securities Ltd to advise shareholders on the legal and financial implications of the L&T open offer.
The committee will essentially write letters to Mindtree shareholders, suggesting whether they should tender their shares at ₹980 apiece to L&T in the open offer or demand a higher price or hold on to their investments.
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The Mindtree panel has time till 10 May to send its recommendations to shareholders, while L&T has the option to raise the open offer price or the offer size till 13 May.
On Friday, Mindtree shares gained 1.06% to ₹952.25 apiece while L&T's rose 0.34% to 1373.55 apiece on the BSE. The benchmark Sensex ended the day 0.46% up at 38,862.23 points.