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Consider L&T Offer, Mindtree board tells promoter group

BENGALURU: Mindtree board members asked the promoter group to consider Larsen & Toubro’s offer to increase its stake in the software company and deferred a decision on buying back shares, citing legal and commercial challenges, people familiar with the developments said.

Some directors advised the founders to negotiate a higher price for the shares instead of stonewalling the engineering company’s overtures, they said.

“Mindtree (founders) will negotiate a higher price – at least Rs 200 more (than the open offer of Rs 980),” a senior investor directly aware of the thinking of the promoter group told ET. “And they (L&T) will pay.” The founders have publicly opposed L&T’s “hostile bid” to acquire majority control in the IT services company they built over two decades.

‘Board Wanted More Details’

L&T signed a deal on Monday to acquire a 20.3% stake in Mindtree from long-term investor VG Siddhartha for Rs 3,269 crore.

L&T said it would raise its stake in Mindtree to 66.32% by spending as much as Rs 7,464 crore through a combination of an open offer and purchase of shares from market, offering Rs 980 per share.

Mindtree chairman Krishnakumar Natarajan told reporters on Tuesday that the offer by L&T did not reflect the company’s true value. “Our 52-week high is Rs 1,183 (per share). The deal has happened at Rs 980. That itself reflects the value of the company,” he said.

The Mindtree promoters, including Natarajan, Subroto Bagchi, chief operating officer NS Parthasarathy and managing director Rostow Ravanan, hold a 13.32% stake in the company.

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Mindtree informed the stock exchanges last week that it would convene a board meeting on Wednesday to decide on a share buyback. However, the board met and deferred the decision, according to a regulatory filing.

“The board wanted more details on the legal process as well as the commercial ones before they could take a decision. We will work with our legal advisers and present it to them,” Ravanan told ET.

Asked to comment on the suggestions on the L&T offer and the response of the founders, he said: “Our stand remains as what we stated.”

Companies aren’t allowed to decide on a share buyback if an acquirer has made an open offer. L&T has said it would retain Mindtree as an independent company and expected the founders to take a decision with a cool head than with emotions. The founders have said that the hostile takeover — the first in India’s IT sector — would demotivate startups and entrepreneurs.

“What L&T is doing is a game changing deal,” said the person close to the Mindtree promoters when asked to comment on arguments that a hostile takeover is detrimental to Indian entrepreneurs. He said Indian technology companies lack an acquisitive mindset and have chosen to reward shareholders with dividends and buybacks instead of growing through acquisitions.

Mindtree’s independent directors may still have time to make a recommendation to shareholders, corporate governance experts said. “The board has to constitute a committee of independent directors to provide a recommendation to shareholders on the open offer. This recommendation has to be published at least two working days before the start of the open offer tendering date,” said Shriram Subramanian, founder of InGovern Research Services.

Mindtree has four independent directors – Akshaya Bhargava, former CEO of investment and wealth management at Barclays, Apurva Purohit, president of Jagran Group, Bijou Kurien, who was part of the founding team at Titan Industries, and Milind Sarwate, founder of Increate Value Advisors.

The draft open offer filed with the BSE said L&T would make a detailed public statement about the open offer on or before March 26.

Shareholder advisory firm Institutional Investor Advisory Services (IiAS) had said the independent board members should guide the shareholders, given that the promoters had set themselves against the bid. Committees of independent directors are common in the US, where hostile takeovers are frequent. “It is a good practice that Mindtree’s board should emulate,” said Amit Tandon, founder of IiAS.

Source: Economic Times