Larsen & Tourbo takeover bid – Mindtree

Larsen & Tourbo takeover bid – Mindtree

Larsen & Tourbo takeover bid of Mindtree is in process according to reports.  Larsen & Toubro’s (L&T’s) hostile takeover bid for MindTree at Rs 980 per share in an all-cash transaction has got a thumbs-down from analysts.

The hostile takeover, if goes through, will be a misfit for the engineering and construction giant, at least in the short term.

Mindtree : 

Mindtree Limited is a multinational information technology and outsourcing company headquartered in Bengaluru and New Jerey, USA. Founded in 1999, the company employs approximately 20,000 employees with annual revenue of approximately $846 million.

The company deals in e-commerce, mobile applications, cloud computing, digital transformation, data analytics, enterprise application integration and enterprise resource planning.

The founders are Subroto Bagachi, Ashok Soota, Namakal Parthasarathy, Krishnakumar Natarajan and Scott saples.

Larsen & Tourbo :

Larsen & Toubro Limited, commonly known as L&T, is one of the largest Indian  Multi national firms and leading construction company in India having headquarters in Mumbai.  

It was founded by two Danish engineers taking refuge in India.  The company has business interests in engineering, construction, manufacturing goods, information technology, and financial services.

The company began as a representative of Danish manufacturers of dairy equipment. However, with the start of the Second World War in 1939 and the resulting restriction on imports, the partners started a small workshop to undertake jobs and provide service facilities

L&T is among the largest five fabrication companies in the world.[11] L&T has a shipyard capable of constructing vessels of up to 150 metre long and displacement of 20,000 tons at its heavy engineering complex at Hazira, Gujarat. The shipyard constructs specialized heavy-lift ships, CNG carriers, chemical tankers, defence & para-military vessels, submarines and other role-specific vessels.

V.G.Siddharta – deal with Larsen & Tourbo :

Siddhartha (now known V. G. Siddhartha) was born in Chikkamagaluru district in a lush green malenadu region. He obtained a master’s degree in economics from  Mangalore University,  Karnataka.

He is married to daughter of S.M.Krishna,  the former Chief Minister of Karnataka, Indian Minister for External affairs and Governor of Maharashtra..

On 18th March 2019 Larsen & Tourbo signed a deal to acquire 20.3% shares of its lead investor V G Siddhartha .  The Co. plans to increase stake to 66.3% through a combination of open offer and buying shares in the market.  Larsen & Turbo is offering  Rs.980 per share.

On 20th March,  Mindtree board is expected to announce a share buyback. 

Reaction by Mindtree – Larsen & Tourbo bid :

The promoters of Mindtree, a global technology services and Digital transformation company, said they would unconditionally oppose the reported hostile takeover bid by Larsen and Toubro Ltd.

The promoters, including Krishnakumar Natarajan (executive chairman), Subroto Bagchi (co-founder), Rostow Ravanan (CEO) and Parthasarathy N.S. (executive vice chairman and COO), issued the following statement:

“The attempted hostile takeover bid of Mindtree by Larsen & Toubro is a grave threat to the unique organization we have collectively built over 20 years. Since we started the company in 1999, we have built a rock-solid organization that outperforms its peers in IT services, differentiates and innovates through digital, and consistently delivers strong financial results and favorable returns to our shareholders. We’ve also carefully created a differentiated corporate culture made up of our amazing “Mindtree Minds,” which reached the 20,000 milestone this year. 

A hostile takeover by Larsen & Toubro, unprecedented in our industry, could undo all of the progress we’ve made and immensely set our organization back. We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders. 

Our collective success depends on building and nurturing relationships with our clients and partners. This unexplainable transaction will bring disruption to those relationships and impair Mindtree’s ability to differentiate itself in the market and continue to deliver client value and great shareholder return. We believe that culture needs to be carefully created and nurtured over time, and can’t be bought and sold like any asset. 

Market reaction  on Larsen & Tourbo takeover bid :

  1. Mindtree slips after Larsen & Tourbo buys 20% stake of the Co.  Larsen & Tourbo down 1%.
  2. Mindtree taps institutions to fend off Larsen & Tourbo’s hostile takeover bid.
  3. The IT Co’s share buy back plan to make takeover expensive for Larsen & Tourbo.
  4. Mindtree surges over 2% on share buy back plan announcement.
  5. Larsoen and  Tourbo mounts hostile bid for Mindtree, eyes 67% stake for Rs.10733 crore.

Reaction from public :

A hostile takeover in an industry such as software services, where people are the biggest assets, can backfire. “We are not aware of any precedent where there has been a hostile takeover in the IT services business. This is primarily because this is a business of relationships and execution by people,” analysts at Investec Capital Services (India) Pvt. Ltd said in a note to clients.

Larsen & tourbo’s reported plan to buy a large stake in Mindtree has led to a fall in the value of its software services arm, Larsen and Toubro Infotech Ltd (LTI). The IT subsidiary’s valuation has fallen nearly 11% since mid-January, on fears that a possible combination can be a drag on its performance.

Reports of L&T’s interest had emerged first in mid-January. Mindtree shares, meanwhile, have risen about 7% in the same period, adding to the gains since October last year.

Even if Mindtree’s promoters somehow agree to strike a deal, the cultural differences between the two companies can create hurdles going ahead, warn some analysts.

Brokerages view on Larsen & Tourbo’s takeover bid :

Analysts remained cautious over Larsen & Toubro Ltd.’s hostile bid to take over Mindtree Ltd. even as the engineering and construction company said the information technology firm will continue to remain an independently listed entity after the transaction.

According to Kotak Securities, “Attrition control and people management would be critical since hostile bids are uncommon in the professional services business as people are the key assets. These assets are not easy to manage in such situations”.  

Views of different brokerages:

Homegrown brokerage IDBI Capital said it would seek clarity on L&T’s plan to manage the risk of exits of Mindtree senior management as the founders have not sounded comfortable with the deal. Also, it wants clarity on L&T’s plan and timeline to merge Mindtree with L&T Infotech and its target to improve the performance of Mindtree, especially consistency of revenue growth and EBIT margin.

As the battle heats up and the founders are looking to thwart the takeover attempt, Mindtree employees have started #MindtreeMatters on Twitter to express their support.

A tweet read : “Trees in Cubbon park & minds in Mindtree are not for sale.”

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