Shareholders advisory firms bat for more details from L&T

Terming the Mindtree takeover bid as an hostile acquisition attempt by L&T, shareholder investment advisors are of the view that details about the deal and how it plans to steer the combined entity ahead should be forthcoming.

L&T has agreed to buy the 20.32 per cent stake in Mindtree with VG Siddhartha, Cafe Coffee Day founder,for ₹3,269 crore. Mindtree’s promoters have termed L&T’s bid a ‘grave threat’ and ‘value destructive’ to the organisation. L&T has also made an offer to buy up to 66 per cent stake in Mindtree for around ₹10,800 crore.

“Unlike brick and mortar companies, the technology businesses are highly intricate and hence L&T should come out with more details to reassure small investors as to how it plans to steer the company ahead or what is it’s actual plan,” said JN Gupta, Founder, SES proxy advisory firm.

Although L&T has specifically stated that Mindtree will remain an independent entity, the transaction is being opposed by Mindtree’s promoters. L&T has signed a share purchase agreement with the Café Coffee Day group at a price of ₹980 per share (less than 2 per cent premium over the closing market price on March 18) for an aggregate consideration of ₹3,269 crore.

L&T will also acquire another 15 per cent from the market at a price not exceeding ₹980 per share and then make an open offer to acquire 31 per cent from the market at the same price, with a view to establish control.

L&T’s acquisition of equity from the Café Coffee Day group, and the subsequent open offer does not require a shareholder vote — from Mindtree’s or L&T’s shareholders. Mindtree’s shareholders need to decide whether to participate in the open offer and thereby support a change in control, IiAS, another proxy advisory firm said.

“Investors may not be in a position to understand the nuances of the decision. Therefore, independent directors of Mindtree must provide guidance to the company’s shareholders on whether shareholders should take up L&T’s open offer. It is not necessary that Mindtree’s Independent Directors toe the line with the company’s promoters: they may have a different view. For example, in 2014, Essar Energy Plc’s committee of independent directors had opposed the delisting offer made by the Ruias,” IiAS said.

Advisors are further of the view that argument of business synergies and impact of takeovers and mergers can be numerically assessed in most cases but not in the current bid as the battle here is one of corporate culture and work ethos.

“Despite the obvious integration risks and possibility of some senior and middle management exits in the event of a hostile takeover of Mindtree by L&T, we think the combined entity will be in a sweet spot with scale in almost all major verticals, barring healthcare,” financial services firm L&T said.

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