L&T bought 31% additional stake through an open offer
Mindtree board’s decision to give shareholders a special dividend of ₹20 a share now runs the risk of being reversed
New Delhi: Larsen and Toubro Ltd (L&T) gained a controlling interest in Mindtree Ltd, raising its stake to 60% in the Bengaluru-based company on Wednesday and successfully concluding India’s first hostile takeover of a software developer.
L&T completed buying the 31% additional stake it targeted to acquire in Mindtree for ₹4,988.82 crore through an open offer as large investors rushed to sell their holdings. The offer to purchase 50.9 million shares of Mindtree from public shareholders was subscribed 1.2 times on Wednesday, two people with direct knowledge said condition of anonymity.
The 60% stake in Mindtree gives L&T complete control over the software company’s board and management.
The purchase of additional shares through an open offer by L&T after acquiring a 20.4% stake in Mindtree from coffee baron V.G. Siddhartha and affiliate firms marks the culmination of a year-long effort by the Mumbai-based engineering giant to gain control of Mindtree through a hostile bid. Such takeovers are uncommon in services businesses as people are their key assets.
Despite opposition from Mindtree’s promoters, L&T managed to get enough public shareholders of the software company to tender their shares at ₹980 apiece and complete the open offer two days before its closing date of 28 June.
“By 3pm on Wednesday, the open offer was 120% subscribed," said the first of the two people cited earlier. “UTI Asset Management Co. Ltd sold its full 2.97% stake in Mindtree to L&T. “Arohi Asset Management Pte Ltd, too, has sold most of its stake it held in Mindtree through two entities." So far, L&T has bought shares worth around ₹10,000 crore in Mindtree.
“Post the takeover, L&T is most likely to change the top management of Mindtree. Some of the top officials, who were hired by the erstwhile promoters, could be replaced," the person said. “Improving the company’s performance will be the key aim. Eventually, L&T will look at a possible merger of L&T Infotech and Mindtree after two financial years."
“Now, L&T does not need to have an AGM for making management changes. L&T can directly call for a board meeting and make the changes," the person added.
On 21 January, Mint first reported that L&T was in talks with Siddhartha to buy the stake held by him and two affiliate firms in Mindtree and then make an open offer for additional shares.
Almost all the large institutional investors in Mindtree have sold their stakes to L&T in the open offer. They include Singapore-based Nalanda Capital (10.61%), UTI Mutual Fund (2.97%), Amansa Holdings Pvt. Ltd (2.77%), Arohi Asset Management (2.74%), Franklin Templeton Asset Management (India) Pvt Ltd (1.06%), alternative investment funds (1.49%) and a few more mutual funds.
Mindtree’s erstwhile promoters N. Krishnakumar, N.S. Parthasarathy, Subroto Bagchi and Rostow Ravanan, along with their families, own 13.32% in the company.
After buying Siddhartha’s stake in March, L&T bought additional shares of Mindtree from the open market, raising its holding to 28.9%. L&T has the option to buy a total of 15% of Mindtree’s shares from the open market.
“So far, L&T has bought around 9% from the open market. After 28 June, L&T will look to buy the remaining 6%," said the first person.
If L&T achieves all its share purchase targets, the engineering company will end up holding 66.32% in Mindtree worth at least ₹10,800 crore.
With L&T now set to control Mindtree, the board’s decision to give shareholders a special dividend of ₹20 a share runs the risk of being overturned. Bengaluru-based Mindtree announced a special dividend in April to mark its 20th anniversary and crossing of the $1 billion milestone in revenue. L&T was unhappy with this decision, according to an executive familiar with the development.
The decision to pay shareholders a special dividend will be put to vote at Mindtree’s annual meeting on 16 July.
“The comments made by Bagchi and when they (founders of Mindtree) tried to fend off unsuccessfully the takeover make their continuation under L&T untenable," the executive said on condition of anonymity. “Bagchi has left. So now it remains to be seen for how long Rostow will continue. Also, L&T will like to have its executives in what is called as enabling functions, like the position of HR, legal and finance."
Last week, Mindtree’s board agreed to induct three of L&T’s executives—chief executive S.N. Subrahmanyan, chief financial officer R.S. Raman and senior executive vice president of L&T’s defence business Jayant Damodar Patil.