MUMBAI/BENGALURU: Denying that its attempt to takeover IT services firm Mindtree is “hostile,” construction major Larsen & Toubro (L&T) on Tuesday called it a well thought out move and a strategic fit to its existing services business. L&T CEO and MD SN Subrahmanyan told reporters in Mumbai it is with “dil” and “pyaar” that they have approached Mindtree, and hoped that like all romantic Hindi movie flicks, the one-sided love story would end with both being in love and happy. Mindtree promoters, on the other hand, called it a “MeToo movement in the corporate world” and vowed to prevent the “hostile” takeover.
Subrahmanyan said that Café Coffee Day founder VG Siddhartha, who owns 20.4 per cent stake in Mindtree, had offered to sell his shares to L&T even a few years ago too, but at that time, L&T had its hands full. But when Siddhartha approached the company again three months ago, they considered it and found that it’s a strategic fit to their services business, Subrahmanyan said. He however, said that L&T does not plan to merge Mindtree with any of its two services firms and that it will function as an independent firm.
L&T CFO R Shankar Raman said the company wants to grow its services business to increase its return on capital, and the price at which the deal is being made (`960-980 a share) would be ROE neutral in the next five years. L&T is also looking to deploy close to `15,000 crore reserves more profitably in the longer run, compared to the 5 per cent return on investments right now. For around two-thirds of ownership L&T is aiming to buy in Mindtree, it might have to spend over `10,700 crore at the current open offer and market purchase price announced.
In a separate press meet in Bengaluru, Mindtree founders reiterated that L&T’s is indeed a hostile takeover. Three founders, Subroto Bagchi, Krishnakumar Natarajan and Rostow Ravanan, addressing the media, said they will unconditionally oppose L&T’s buyout move.
“The attempted hostile takeover bid of Mindtree by L&T is a grave threat to the unique organisation we have collectively built over 20 years. We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders,” the founders said in a joint statement.
They further went on to say that such a hostile move is unprecedented in the Indian IT industry and might set a wrong precedent for all the first-generation entrepreneurs. “We have done a research and found that 100 per cent of agreed acquisition in the industry has only resulted in the erosion of values and market cap of both the acquirer and acquiree,” said Ravanan, Mindtree CEO.
On its plans to prevent the buyout, he said that “the process has to go through various levels of regulations and we will raise our concerns in each stages of it. We have not decided about any other Plan B.”
Industry analysts feel the move will benefit L&T. “L&T’s acquisition of Mindtree is a strategically positive move in the long term. Even in the near term, the acquisition will not be a drag on L&T’s earnings and return ratios. L&T has a large pool of talent to effectively manage the exit of the current management of Mindtree without much of an adverse impact on the business,” said Gaurav Dua, head of research, Sharekhan by BNP Paribas.