L&T closer to controlling Mindtree after buying Nalanda Capital’s 10.61% stake

K Giriprakash Bengaluru | Updated on June 24, 2019 Published on June 24, 2019

L&T is now closer to its goal of acquiring a 51 per cent stake in Mindtree after institutional investor Nalanda Capital is learnt to have sold its entire 10.61 per cent holding in the IT company to the infrastructure major.

The infrastructure major on June 17 floated an open offer to buy 5.13 crore shares, 31 per cent of the equity capital of Mindtree, at a price of ₹980 per share. The open offer ends on June 28.

Sources said the move by Nalanda follows a showcause notice from SEBI for asking Mindtree shareholders not to subscribe to the open offer. It is learnt that the notice was sent to Nalanda after the proxy advisory firm, InGovern Research last week wrote to SEBI asking it to find out the reasons for Nalanda Capital demand for a higher price and creating dissonance among minority shareholders.

Also read: Best of Mindtree is yet to come; will grow faster than industry: Chairman

Last Thursday, SEBI, sources said, had sent a show cause notice asking why action should not be taken against it as it is deemed to have acted in concert to foil L&T’s open offer without making a counter offer. This puts the Singapore-based Nalanda in a spot as it is registered as a foreign portfolio investor with SEBI.

In its note to the investors, InGovern said that they should go ahead and tender their shares during the open offer. Mindtree shares valued at ₹980 a share were 19 times FY20 earnings and higher than comparable listed peers, and higher than five-year average multiple of 16.7x of Mindtree shares.

InGovern said the immediate possibility of a higher offer price from L&T is remote as it has already accumulated enough shares and can bide time to consolidate its shareholding through creeping acquisitions. There is no justification for a significant control premium as the largest shareholder VG Siddhartha with 20+ per cent wasn’t exercising any control and sold the entire block at ₹980 per share. Even L&T has said that they will exercise control only through the Board and not change the current management, InGovern said. It pointed out that the induction of three L&T executives on MindTree’s board including SN Subrahmanyan, CEO and managing director of L&T, as non-executive directors leads to more uncertainty for the company. The current promoters consider the acquisition hostile, and with three board seats, there is the likelihood of a standoff.

Also read: L&T gets three seats on Mindtree board

Once the new directors are appointed by shareholders at the Mindtree AGM of July 16th, the revised Board will have a total of 12 members, of which six are independent, three represent L&T and three the promoters. If there is continued animosity, board decisions may be split, and management bandwidth constrained. “Minority investors should be concerned that any prolonged uncertainty at the Board can lead to loss of shareholder value,” the note said.

L&T is likely to be comfortable once it establishes or has visibility to be holding a 51 per cent shareholding in Mindtree. So, even if 15 per cent to 20 per cent of shareholding is tendered in the open offer, L&T would be comfortable, it said.

Published on June 24, 2019

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