The target of a hostile takeover attempt, Mindtree Ltd’s declaration of a generous dividend payout plan has attracted the regulator’s glare.

In a recent letter, the Securities and Exchange Board of India, or Sebi, has questioned Mindtree about its hefty dividend payout plan.

Two people with direct knowledge of the matter confirmed the development, seeking anonymity.

On 18 April, while declaring the annual results for fiscal 2019, the Mindtree board announced total dividend of 270% or 27 per share.

(Vipul Sharma/Mint)

The target of a hostile takeover attempt, Mindtree Ltd’s declaration of a generous dividend payout plan has attracted the regulator’s glare.

In a recent letter, the Securities and Exchange Board of India, or Sebi, has questioned Mindtree about its hefty dividend payout plan.

Two people with direct knowledge of the matter confirmed the development, seeking anonymity.

On 18 April, while declaring the annual results for fiscal 2019, the Mindtree board announced total dividend of 270% or 27 per share.

This includes a special dividend of 200%, a final dividend of 40% and an interim dividend of 30% for fiscal 2019.

The dividend package, the highest in the firm’s two-decade-long history, will fetch the promoters around 60 crore for their 13.32% stake.

Soon after, Sebi, in the third week of April, wrote to Mindtree, questioning the company’s dividend payout policy, said the first person. Sebi has also asked Mindtree to provide a copy of its dividend policy.

The company is the target of a takeover bid by India’s largest engineering and construction conglomerate Larsen and Toubro Ltd, or L&T. On Thursday, L&T completed buying a 25.93% stake in Mindtree.

Email queries to Mindtree, Sebi and L&T did not elicit any response till press time.

On 18 March, L&T announced plans to take over Mindtree by acquiring a 20.32% stake from Café Coffee Day founder V.G. Siddhartha, 15% from the open market and 31% through an open offer beginning 14 May.

If L&T manages to acquire 66.32% in Mindtree, the bill would amount to 10,700 crore. The deal will mark the country’s first hostile takeover in the IT industry. The Mindtree promoters have been resisting L&T’s unsolicited takeover bid. However, the board, so far, has not been able to come up with a counter offer to fend off L&T’s bid.

An 18 April Mint report said that in Mindtree’s record dividend, some see a tactic to ward off the L&T takeover, while Mindtree said the special dividend was a way to celebrate the $1 billion it had earned in revenue in fiscal 2019 and mark the company’s 20th anniversary.

Mindtree’s chief executive officer Rostow Ravanan had denied that the board’s decision to pay a one-time dividend to shareholders was a poison pill manoeuvre.

In market parlance, a ‘poison pill’ is a corporate strategy to try and prevent a hostile takeover—so termed because it makes the stock less attractive to an acquirer as the stock price becomes more expensive.

If the dividend proposal receives shareholder approval in an AGM scheduled in July, Mindtree will pay a total dividend of 384.30 crore to shareholders, including a special dividend of 284.67 crore. The promoters will get 59.07 crore.

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