Opinion | Hostile takeovers can enrich shareholders2 min read 19 Mar 2019, 10:07 PM IST
Aggressive bids to acquire Indian companies have been few and far between. L&T’s attempt to take Mindtree over, however, could shake things up in Corporate India for the better
It is a bit unfortunate that Larsen & Toubro Ltd’s bid for a relatively well-run company like Mindtree Ltd, a software firm that has rewarded its shareholders well over the past 10 years, has come to revive lost interest in the business of hostile takeovers in India. Given the poor track record of many Indian promoters and the consistently poor returns they have been giving their shareholders, India needs more such buyouts, though it obviously helps if they are congenial. Over the last 20 years, the compound annual growth rate of the National Stock Exchange’s Nifty has been only 13.4%. Lurking in the list of companies that compose this index are laggards that have made lousy use of scarce capital, not to speak of other publicly listed duds. The threat posed by a barbarian at the gates is often well deserved; it serves lazy bosses a warning to either shape up or ship out. What holds good for acquisitions in general applies to hostile ones as well. Successful takeovers result in better use of an acquired company’s resources, higher profitability and enhanced returns for shareholders. To the extent that a shift in command infuses a firm with new ideas, generates dynamism and ups efficiency, it is to be welcomed.