Will Mindtree fourth-quarter results impact L&T’s open offer?

Our Bureau Mumbai | Updated on April 15, 2019 Published on April 15, 2019

Independent directors of Mindtree should ensure that the company presents the true picture while announcing the quarterly numbers and resist any move to influence the open offer made by L&T, proxy advisory firms say. Mindtree will announce fourth quarter results on April 17.

“Irrespective of any merger, acquisition or open offer independent directors are duty-bound to approve or suggest in the best interest of the company and one that fits the law and governance standards,” said J N Gupta, former ED SEBI and founder promoter, Shareholder Empowerment Services, a proxy advisory firm.

“In the case of Mindtree, if the independent directors are under any pressure to act in a certain manner, they must resist and just approve what fits the law and is in the best interest of the company and its shareholders,” Gupta added.

“It is not the question of presenting a good or bad picture of a company to influence the open offer. The independent directors must be clear that a fair picture is presented,” Gupta added.

Larsen & Toubro will offer ₹980 a share to buy additional 31 per cent shares in Mindtree in an open offer, scheduled to start on May 14 and close on May 27.

Mindtree shares closed at ₹978 a share on Monday on the BSE.

If the company announces a good set of numbers, in line with the growth seen by TCS and Infosys, its share price could rise above the L&T offer price.

Obligations of the board

“The board of directors, the audit committee, and of course, the auditors of Mindtree, must be particularly alert to ensure that the revenue recognition during the January-March, 2019 quarter is appropriately done,” said an accounting expert.

“Considering the nature of the open offer and the current pricing being close to the open offer price, the fiduciary obligations of the board and the audit committee becomes very critical,” the expert added.

An Indian IT outsourcing entity may undertake preparatory activity and incur costs before getting into a steady state of providing the outsourcing service. It may also receive fees for such activity.

Under the Indian Accounting Standard (Ind AS) 115, this may not qualify for upfront revenue recognition since the customer may not separately benefit from such activity.

Consequently, revenue for such fees may be deferred, including related incremental costs subject to recoverability.

These rules are more stringent and leave lesser room for manoeuvering than before in the hands of the management, the expert added.

Published on April 15, 2019
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