Mindtree's emotional bid to prevent hostile takeover

The Bengaluru-based mid-tier IT services company Mindtree on Tuesday launched a last-ditch effort to prevent a hostile takeover by engineering behemoth Larsen & Toubro (L&T) by making an emotional appeal to key stakeholders.

The company’s promoters led by Chief Executive Officer Rostow Ravanan, Executive Chairman Krishnakumar Natarajan and co-founder Subroto Bagchi on Tuesday said the hostile takeover bid made by L&T was a grave threat to the survival of the company.

Also read: L&T versus Mindtree: Major showdown on cards

Addressing a press conference at its corporate office located at West Bengaluru’s Global Village Technology Park, the three founders said that they had several options before them and they would use them at the right time to prevent L&T's hostile takeover.

L&T on Monday agreed to buy 20.3% stake of Mindtree Ltd for about Rs 3,270 crore from V G Siddhartha, the single largest shareholder in the company. It also announced plans to acquire a controlling stake for close to Rs 10,700 crore through an open offer to public shareholders. It will pay Rs 980 per share.

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

The promoters also tried to gather public opinion in their favour. They posed five questions to the L&T management on the hostile takeover bid. However, Mindtree’s promoters didn’t come up with a counter-offer.

In the questionnaire, the Mindtree management raised questions about the moral values and the capabilities of L&T. “You have chosen to mount the first ever 'hostile takeover' in the 50-year old, unblemished Indian IT industry. If you persist in what you are doing, you will be forever remembered for this. Is this how you want to set an example?” the promoters asked.

Stating that L&T has a turnover of Rs 120,000 crore, which is 18 times more than the size of Mindtree, the promoters said, “Why can’t you build a great technology business with all your resources and capability without decimating another organisation?”

Ravanan said that L&T's attempt would lead Mindtree’s customers to halt future business and even take the existing business elsewhere.

“This is a people business. Our people have signed up for a mission and not just a salary. Take their mission away and they will go. What would you be left with?” asked the promoters.

Institutional support

The company alleged that the move would discourage young entrepreneurs from starting their own ventures. The company also stated that its position had been supported by one of its foreign institutional investors (FIIs) – Nalanda Capital, which owns 10.61% stake through two of its funds: Nalanda India Fund Limited (8.87%) and Nalanda India Equity Fund Limited (1.65%).

In a BSE filing late Monday night, L&T had stated that it intends to buy 5.13 crore shares in the tech company at the offer price of Rs 980 per share.

Open offer

L&T also agreed to buy a further 15% stake of the company from the markets from various shareholders, both retail and institutional, at Rs 2,434 crore. Both transactions cost Rs 5,703 crore for the buyout of 5.82 crore shares of Mindtree, which ultimately triggered the open offer.

As of now, there is clarity on only 20.15% of the stake, which L&T has agreed to buy from Siddhartha. If the open offer is fully subscribed, L&T would control 66.15% stake in Mindtree. It would result in a payout of Rs 10,733 crore for the move and has been vehemently opposed by the Mindtree promoters.

As of date, the Mindtree promoter group holds 13.32% shareholding, while the remainder rests with the public. Of the total shareholding of the company, 50.57% is held by institutional investors, which include Nalanda India Fund, Amansa Holdings and Vanguard among others.