L&T's hostile takeover bid is 'value destructive' for all shareholders: Mindtree promoters

Mindtree, in a late night regulatory filing yesterday, made it clear that its promoters intend to "unconditionally oppose" Larsen and Toubro's (L&T) hostile takeover bid, the country's first in the IT sector. The exchanges were informed about two hours after the infrastructure giant in a statement announced an open offer to buy 31% stake in the company as per SEBI Takeover Regulations (as required under Regulation 3(1) and 4).

This move followed L&T's announcement that it has signed a Share Purchase Agreement (SPA) to acquire Cafe Coffee Day owner VG Siddhartha's 20.32% stake in Mindtree (held by him and his affiliate firms). In addition, L&T has placed an order with brokers to pick up another 15% of the company shares from the open market. All the three acquisitions - adding up to a 66.32% stake - are being done at Rs 980 per share, a premium of 1.8% over Monday's closing price of Mindtree on the BSE.

"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," Mindtree's promoters said in a statement yesterday. The promoters, including the four founders of the company Krishnakumar Natarajan (executive chairman), Subroto Bagchi, N.S. Parthasarathy (executive vice chairman and COO) and Rostow Ravanan (CEO), collectively hold a 13.32% stake in the firm and have been rebuffing M&A overtures for a while now.

Referring to Mindtree's consistently strong financial results and favourable returns to shareholders as well as "a differentiated corporate culture made up of our amazing 'Mindtree Minds', which reached the 20,000 milestone this year", the statement added that a hostile takeover by L&T could "immensely" set the company back. "We don't see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders," read the statement. "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."

The promoters maintain that they remain fully committed to their "long-term vision of building an independent company" and stated that it is in the "best interests" of the shareholders, Mindtree Minds, and the organisation to "continue opposing" the takeover attempt. "In addition, there has been a large outpouring of sentiment from Mindtree Minds online at #MindtreeMatters expressing their strong desire to retain our culture and our independence," said the statement.

Meanwhile, Mindtree has been taking steps to avert the hostile takeover attempt. In a filing to exchange on March 15, Bengaluru-headquartered company said that its board will meet on March 20 to consider the proposal to buyback the fully paid-up equity shares of the company. As of December 2018, Mindtree reportedly had cash to the tune of Rs 162 crore and investments worth Rs 811 crore. This corpus is expected to be used for the potential buyback.

Also, co-founder and ex-CEO Bagchi recently returned to the company, quitting his job as the head of Odisha Skill Development Authority. "An imminent threat of hostile takeover of Mindtree has made me to resign from the Government to be able to go, save the company. I must protect the Tree from people who have arrived with bulldozers & saw chains to cut it down so that in its place, they can build a shopping mall," Bagchi had tweeted on Sunday night.