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[EXPLAINED] Larsen & Toubro's hostile takeover of Mindtree

Aparna Deb
Updated Jul 11, 2019 | 16:55 IST

In another exchange ling on 6 July 2019, Mindtree said its top management had stepped

down following L&T becoming a promoter of Mindtree.

New Delhi: In what is touted as the rst hostile takeover of a company in

the country, Indian conglomerate Larson & Toubro has successfully
completed its takeover of IT company Mindtree. As per L&T, initially, Cafe
Co ee Day founder VG Siddhartha who was facing pressures of liquidity
approached them o ering to sell his stake in the company in March 2019.
Interestingly, Siddhartha was the single-largest non-promotor shareholder
having 20.32 per cent stake in Mindtree. L&T o ered him Rs 980 per share,
which approximately amounted to Rs 3,269 crores. This o er
was vehemently opposed by the management of Mindtree which set stage
for a hostile acquisition. 

In March 2019, Chairman of L&T AM Naik in his address to the media had
explained how the acquisition of Mindtree was a value addition. The Indian
conglomerate already has a listed IT company - L&T Infotech -  which
focuses on BFSI verticle whereas, Mindtree largely focuses on clients
from hospitality and retail sector. So, a takeover would mean an expansion
of L&T's information technology business.

Larsen & Toubro's hostile takeover of Mindtree, Explained

Why are we calling it a hostile takeover?

A hostile takeover is said to be one where a company acquires the target

company by going to the target company’s shareholders or by ghting to
replace management to get the acquisition approved. And when the
management of the target company doesn't want the deal to take place, it
is called a hostile takeover.

In Mindtree's case, promoters Subroto Bagchi, NS Parthasarathy, Rostow

Ravanan, and Krishnakumar Natarajan have unconditionally opposed the
takeover bid by L&T.

How did L&T take over Mindtree?

In a normal scenario, when a company tries to acquire another, it can o er

to gain control if it owns 25 per cent stake of the company it is trying to
acquire. However, L&T did not own 25 per cent ownership of the company.
So, L&T used a loophole in the Securities and Exchange Board of India's
(SEBI’s) Takeover Code.

The Indian conglomerate used Section 3, Clause 1 along with Section 4 of

the securities regulator’s takeover code, which entitles L&T to make an
open o er to acquire public shareholding in the company.

As per this section, those with a 25 per cent stake or more cannot take
over a company unless an open o er has been made to acquire shares of a
company with a public announcement. However, the takeover code also
says whether or not one holds shares or voting rights in the company, one
is not eligible to take control unless a public announcement of an o er to
acquire those shares is made. This allows L&T to make an open o er,
without owning 25 per cent shares in the IT major.

RELATED NEWS:
M&A activity saw sharp decline in Jan-Mar quarter: EY India
Mindtree
M&A co-founders quit after L&T buys controlling stake
L&T buys VG Siddhartha, Co ee Day stake in Mindtree
activity
How the takeover has panned out till now?

The deal started when L&T bought 20.32 per cent shares in Mindtree from
Cafe Co ee Day founder VG Siddhartha for almost Rs 3,269 crores in
March 2019. Following this, it made an on-market purchase of around 15
per cent capital shares.

Last month, L&T made an open o er for an additional 31 per cent stakes
which started on June 17 and concluded on June 28, 2019. On July 2,
2019, Mindtree said in its regulatory ling, "We wish to inform that Larsen
& Toubro Limited has acquired equity shares to an extent 60.06 per cent of
the total shareholding of the company and has acquired control and is
categorised as promoter pursuant to Sebi... Regulations, 2018."

In another exchange ling on 6 July 2019, Mindtree said its top Executive

Chairman Krishnakumar Natarajan, Executive Vice-Chairman and Chief
Operating O cer (COO) N S Parthasarathy, and Managing Director and
Chief Executive O cer (CEO) Rostow Ravanan have stepped down.

While Mindtree is still due to announce its new leadership, "Mindtree will

be run as a separate entity, distinct from L&T Infotech (LTI) and L&T
Technology Services (LTTS). The entities would run at an arm's length. It is
inappropriate to speculate about the future structure now," L&T CEO SN
Subrahmanyan told PTI.
h

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