Mindtree plans defence against hostile takeover by L&T

Mumbai: Mindtree Ltd’s board will meet on 20 March to consider a proposal to buy back its fully paid-up equity shares from the market, the information technology (IT) company said in an exchange filing on Friday. The move comes at a time when engineering conglomerate Larsen and Toubro Ltd is in advanced talks to buy out a 20.4% stake held by Café Coffee Day (CCD) founder V.G. Siddhartha, the group’s flagship Coffee Day Enterprises Ltd and its step-down subsidiary Coffee Day Trading Ltd.

If approved by the board, the move could act as a poison pill against a hostile takeover bid. It could push the potential buyer to offer a higher price to the public shareholders than that offered by Mindtree promoters for the buyback.

Mindtree plans defence against hostile takeover by L&T

The promoters, who together own around 13%, have a two-pronged action plan: one, pledge their shares in exchange for money; two, raise money from a wealthy family office, according to a Mint report in January.

In both cases, the ultimate objective would be the same: purchase Mindtree shares from Siddhartha to prevent a hostile takeover by an outsider.

A purchase of more than 5% by promoters or a 25% stake by any other buyer in a listed firm triggers an open offer according to existing norms. As such, the buyer is required to make a public offer to buy at least another 26% stake.

Mindtree shares closed at 946 apiece on the BSE on Friday, which means Siddhartha’s stake will cost a buyer at least3,200 crore. A purchase of an additional 26% from other shareholders in an open offer will cost more than 4,200 crore.

“The pledge of promoters’ 13% stake could fetch around 1,000 crore and the rest 3,000-3,200 crore will come from the family office,” said a person with direct knowledge of the plans of Mindtree.

Mindtree’s move has been prompted by Siddhartha’s decision to sell off the stake held by him and the two CCD affiliate firms. As Siddhartha is the largest shareholder in Mindtree, his decision to exit the firm has motivated several large buyout funds and other companies to make a takeover bid through an open offer by buying Siddhartha’s stake and 5% more from other shareholders.

L&T’s plan is to buy an additional 5% stake either through an open offer or directly from the promoters of Mindtree, primarily with the objective of creating an IT consulting and services giant through a merger of Mindtree, L&T Infotech Ltd, and L&T Engineering Services Ltd.