Mindtree board rejects L&T’s Rs10,733-cr hostile bid
19 Mar 2019
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The board of directors of IT services company Mindtree has rejected a hostile takeover bid by engineering, construction and technology conglomerate Larsen & Toubro Ltd, terming the Rs10,733-cr bid as “value destructive.”
L&T, which has its own IT business unit, on Monday, said it would buy 20.4 per cent stake in the company for about Rs3,269 crore from a promoter and proposed to raise its stake further to 65 per cent through market deals.
L&T also assured investors said it would run Mindtree as a separate concern and that there are no plans to merge it with its own technology services unit L&T Infotech Ltd, in which it owns a 74.8 per cent stake.
The board of Bengaluru-based Mindtree said they saw no strategic advantage in the transaction and believed that it would be “value destructive for all shareholders.”
The board said it would deliberate over the L&T proposal on Wednesday.
Mindtree, with a strong client base and a higher earnings ratio, is an attractive asset for L&T. Mindtree will help boost the combined revenues of Mindtree, L&T Infotech and L&T Technology Services to about $3 billion, according to analysts.
In its first hostile takeover, L&T offered to acquire the entire 20.4 per cent stake of promoter Siddhartha in Mindtree, offered to acquire an additional 31 per cent in the company for Rs5,030 crore and placed an order for 15 per cent more in the IT company
L&T said it has placed an order with its broker for open market purchase of up to 15 per cent of Mindtree's shares at Rs980 apiece. This will take L&T's share to nearly 65 per cent, valuing the deal at Rs10,733 crore.
L&T, whose board met during the day to consider the acquisition of Mindtree, offered to buy 51.3 million shares from shareholders.
Larsen & Toubro Limited on Monday said it has entered into a definitive share purchase agreement (SPA) with one of the promoters of Mindtree V G Siddhartha and his related entities namely, Coffee Day Trading Limited & Coffee Day Enterprises Limited, to acquire 20.32 per cent stake in the IT services provider.
L&T on Monday said it would buy 20.32 per cent stake in the global technology services and digital transformation company, Mindtree, at Rs980 per share, or for Rs3,269 crore. It also made an open offer for an additional 31 per cent stake in the IT services firm for Rs5,030 crore, all in cash.
Pursuant to execution of the SPA, 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 per cent of the outstanding shares of Mindtree at a price of Rs980 per share in cash.
Immediately following the filing of the public announcement, L&T also placed an order with its broker for market purchase of up to 15 per cent of share capital of Mindtree at a price not exceeding Rs980 per share.
L&T said the acquisition is inter alia subject to receipt of necessary regulatory approvals and satisfaction of other conditions as specified in the offer documents. L&T also said it has sufficient financial flexibility to fund the entire transaction through its existing financial resources.
This acquisition is in line with L&T’s stated strategy of focusing on services and asset light businesses to drive profitable future growth. This further adds to L&T’s attractive IT services platform with a focus on new-age digital / cloud solutions, making it highly complementary to L&T’s current technology services portfolio.
Mindtree’s offerings to its customers include application development and maintenance, infrastructure management services, independent testing, package implementation, consulting and IP products related solutions.
While Mindtree would remain an independent listed entity, L&T would extend support to Mindtree in its business going forward. Mindtree will benefit from access to larger client base and wider product offerings under a common parentage giving higher returns to shareholders of Mindtree, it added.
“This acquisition is part of our strategy to deliver industry leading IT services to our clients worldwide. It will help propel L&T’s technology portfolio into top tier of Indian IT companies. Mindtree has a well-established management team which has earned the respect of the market in terms of its service offerings and business practices. This acquisition will allow L&T to further enhance shareholder value for both its own shareholders and Mindtree shareholders in the medium to long term,” S N Subrahmanyan, CEO and managing director of L&T said.
KPMG Corporate Finance acted as the lead advisor for the transaction while Axis Capital Limited was the lead financial advisor and Citigroup Global Markets are acting as financial advisors to L&T. AZB and Partners and Baker & McKenzie LLP are acting as legal advisors to L&T.
Larsen & Toubro is an Indian multinational engaged in engineering, construction, manufacturing, technology services, information technology and financial services with $18 billion in revenue.
While Mindtree would remain an independent listed entity, the statement said that L&T would extend support to Mindtree in its business going forward. The Mindtree will benefit from access to larger client base and wider product offerings under a common parentage giving higher returns to shareholders of Mindtree, the statement added.
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