L&T acquires crucial 26% stake in Mindtree as marquee investors exit

Ever since L&T acquired a 20.32% stake in Mindtree from Café Coffee Day (CCD) founder V.G. Siddhartha and two of his affiliate firms, India’s largest engineering company has been buying up shares of Mindtree from the market, with a target of 15%. L&T has also announced an offer to buy 31% of Mindtree shares from public shareholders, starting Tuesday. If all share purchases go as planned, L&T will end up with more than 66% in Mindtree.

L&T bought an additional 1% of Mindtree shares on Thursday at a price of up to ₹980 per share, the two people cited earlier said on condition of anonymity.

According to the two people, L&T bought the shares from mutual funds, alternative investment funds (AIFs), insurers and wealthy individuals. A final confirmation will be available when details of the deals are available on the exchange websites. The websites did reflect higher traded volume in the Mindtree counter, but further details are unavailable.

Mindtree investors that sold shares to L&T include White Oak Capital Management founded by former Goldman Sachs executive Prashant Khemka, according to one of the two people cited earlier. White Oak Capital had close to 1% in Mindtree, this person added.

Axis Capital is managing the open market purchase for L&T.

Emails sent to L&T, Mindtree and Axis Capital remained unanswered. When contacted on the phone, an L&T spokesperson declined to comment.

As of 31 March, AIFs held 1.49% and mutual funds 9.02% in Mindtree, while Enam Group co-founder Nemish Shah’s wife Rekha N. Shah held 1.67% and S. Janakiraman 1.52%.

On Tuesday and Wednesday, investors Enam Group and HDFC Life Insurance sold their 2.2% and 1% stakes, respectively, according to the first person. Akash Bhansali, who heads the investment venture at Enam, did not respond to messages sent by Mint on Wednesday. An HDFC Life spokesperson said, “As financial investors, we transact in various securities on a daily basis in the normal course of business and do not comment on specific transactions."

Rekha Shah holds 1.67% and other Enam Group entities hold around 0.53% in Mindtree.

On 30 April, Siddhartha and two CCD affiliate firms, Coffee Day Enterprises Ltd and Coffee Day Trading Ltd, together sold around 20.32% to L&T for about ₹3,200 crore.

On 18 April, L&T announced that buying at least 26% in Mindtree would be its first priority and critical for the engineering company’s overall aim of raising its stake to as much as 66.32% and gain management control. The ₹10,700 crore deal is India’s first hostile takeover in the IT industry.

L&T began its open market purchase on 30 April.

“Irrespective of the amount of purchase in the upcoming open offer, L&T will continue to buy Mindtree shares from the open market. L&T plans to buy 9% more from the open market, which should be completed within the next two weeks, considering the market response so far," said the first person.

“With 26% stake, L&T can now demand board representation at Mindtree, irrespective of the amount of purchase in the proposed open offer," said the second person.

After L&T announced its open offer, Mindtree formed a committee of independent directors headed by Apurva Purohit. The committee has time till Friday to make a recommendation on the L&T offer price to Mindtree shareholders.

Mindtree founders, who together hold 13.32%, have been resisting L&T’s takeover bid.

With a 26% stake, L&T will be entitled to receive a special dividend of ₹102 crore; if it succeeds in acquiring a total of 66.32% in Mindtree, the engineering firm will be entitled to a total dividend income of around ₹260.5 crore. This is because Mindtree, while declaring its annual financial results on 18 April, announced a fat special dividend of ₹20 a share and a final dividend of ₹4 a share.

Apart from the special and final dividends, Mindtree announced an interim dividend of ₹3 a share. The record date for the interim dividend was 27 April, but L&T is not entitled to receive this as it bought shares in Mindtree after that date. However, L&T will be eligible to receive the proposed special and final dividend if Mindtree shareholders approve the proposal at the annual meeting scheduled in July. If the proposal gets cleared, it will be Mindtree’s highest dividend payout since its inception two decades ago.