Mindtree promoters do not want to relinquish control. The firm's board will meet on 20 March to consider a buyback of all equity shares to fend off a hostile takeover by L&T. (Sarvesh Kumar Sharma/Mint)
Mindtree promoters do not want to relinquish control. The firm's board will meet on 20 March to consider a buyback of all equity shares to fend off a hostile takeover by L&T. (Sarvesh Kumar Sharma/Mint)

Stage set for showdown in L&T-Mindtree takeover battle

  • Larsen and Toubro agrees to buy Cafe Coffee Day founder V.G. Siddhartha's 20.32% stake in Mindtree for 3,269 crore
  • L&T says will buy an additional 15% in Mindtree from open market and launch an open offer for 31% more, both at 980/share

Mumbai: Larsen and Toubro Ltd (L&T) on Monday agreed to buy Cafe Coffee Day founder V.G. Siddhartha’s stake in Mindtree Ltd for 3,269 crore, setting the stage for a showdown with the Bengaluru-based company’s controlling shareholders, who are preparing a defence against the hostile takeover.

CCD's V.G. Siddhartha, co-promoter of Mindtree.
CCD's V.G. Siddhartha, co-promoter of Mindtree. (Priyanka Parashar/Mint )

L&T has agreed to pay 980 per share for the 20.32% stake held by Siddhartha and his two affiliate companies, the Mumbai-based engineering company said in a filing to stock exchanges. The purchase price is a 1.8% premium to Mindtree’s closing share price on Monday.

L&T said it would buy an additional 15% in Mindtree from the open market at 980 per share, adding it had already placed an order with its broker. If L&T is successful in purchasing the stake, it will trigger an open offer, since takeover norms mandate that the acquirer should offer to purchase shares from the public once its stake crosses 25% in a listed firm.

“The aforementioned market order for share purchase and with the intent to acquire majority stake in Mindtree, L&T has announced an open offer as per Sebi takeover regulations to the public shareholders of Mindtree to purchase up to an additional 31% of the outstanding shares of Mindtree at a price of 980 per share in cash," L&T said in the exchange filing, adding that Mindtree would continue to remain an independent listed entity following the acquisition.

On Monday, Mint first reported that L&T was set to buy Siddhartha’s entire stake and would attempt to buy an additional 31% to take over Mindtree.

Developments around the Mindtree acquisition occurred in quick progression since last Tuesday when the board of L&T cleared a proposal to acquire Siddhartha’s stake and take over Mindtree. In response, the Mindtree board said on Friday that it would meet on 20 March to consider a buyback of all paid-up equity shares of the company to fend off a hostile takeover by L&T.

On Sunday, Mindtree co-founder and board member Subroto Bagchi rushed back to “save" his company from a hostile bid. He said he had quit his government job as chairman of Odisha Skill Development Agency to help counter the takeover threat.

Subroto Bagchi, co-founder and board member of Mindtree.
Subroto Bagchi, co-founder and board member of Mindtree. (Aniruddha Chowdhury/Mint)

“An imminent threat of hostile takeover of Mindtree has made me resign from the government to be able to go, save the company," Bagchi tweeted. “I must protect the Tree from people who have arrived with bulldozers and saw chains to cut it down so that in its place, they can build a shopping mall."

L&T is about to take advantage of a rarely used clause of Sebi's takeover code in order to acquire Mindtree. Even without buying 25% in Mindtree, L&T will launch an open offer to acquire control of the information technology firm. “Using Section 3, Clause 1 of the takeover code, along with Section 4 of the code, L&T is entitled to announce an open offer to acquire control of Mindtree," a person directly aware of the development said, requesting anonymity.

KPMG’s corporate finance team handled the mandate for L&T’s purchase of Siddhartha’s stake.

Axis Capital and Citigroup Global Markets will manage L&T’s open offer.

Rajesh Begur, founder and managing partner at ARA LAW said that given the actions of the promoters of Mindtree for initiating a buyback of shares, it is a forgone conclusion that a friendly takeover may not happen at this stage.

“If all parties are intending to a friendly takeover, then the promoters can agree to the same, whereby the promoters continue to hold their stake in the company and the promoters agree on a divestment plan on a better valuation with L&T. Further, the executive promoters can continue to be in their role for the next 2-5 years and thereafter have an orderly transition of the company. If L&T can achieve this and ensure that the cultural line of Mindtree is kept distinct from L&T’s culture, then it is a win-win situation for all and this can become a friendly takeover," said Begur.

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