Takeover drama

| Updated on March 27, 2019 Published on March 27, 2019

Mindtree’s public shareholders should be allowed to take an objective call on L&T’s bid, without extraneous influences

With Larsen & Toubro (L&T) announcing an open offer to acquire a 31 per cent public shareholding in Mindtree, the melodrama over this takeover seems to giving way to a more reasoned response. Mindtree, which was toying with a share buyback plan to undermine this bid, has now dropped this idea and has set up a committee of independent directors to evaluate the offer. Hopefully, with this development, the L&T management and Mindtree promoters will cease their war of words on this issue and leave the decision to Mindtree’s public shareholders, who are the only entities who should be taking a call on the merits of this offer.

Mindtree’s founders have been vociferous in their opposition to L&T’s ‘hostile’ takeover bid, ever since L&T signalled its intent to acquire control after snapping up a 20.4 per cent equity stake from VG Siddhartha — Mindtree’s largest shareholder. L&T, which has two software services firms under its fold, sees the Mindtree acquisition as a good way to scale up its presence in the asset-light services space. It has cited the complementarity of its software portfolio with Mindtree’s as the key motivation for this takeover bid. Mindtree’s promoter shareholders, in contrast, have made no bones about the fact that they see L&T as a highly undesirable suitor. While the Mindtree promoters’ passion for the business they have built from ground up is understandable, the truth is that they have little locus standi to decide on behalf of Mindtree’s shareholders with a mere 13.3 per cent shareholding in the company. The founders are in fact doing the company more harm than good by making emotional appeals to Mindtree employees to ‘save the tree’ from L&T’s attempts to ‘chop it down’. Should L&T succeed in its open offer, a hostile workforce could render a seamless management transition difficult.

Now that the open offer has been announced, it is important that the Mindtree promoters distance themselves and allow the committee of independent directors to make objective recommendations to other shareholders. L&T, on its part, needs to lay all its cards on the table on its strategic plans for Mindtree. For public shareholders to take an informed decision, they will need to know if L&T plans to operate Mindtree as an independent entity or merge it. As long as this acquisition bid adheres to SEBI’s Takeover Code, there is no case for any regulatory intervention in the affair. In the past, takeover attempts at India Inc have often been foiled by promoters with large equity stakes over-ruling the minority and roping in white knights to thwart the acquirer. But with the promoter stranglehold on India Inc loosening, the market for corporate acquisitions is now poised for take-off. Regulators must do their best to encourage this, as a vibrant market for corporate control keeps promoters on their toes, promotes healthy competition for good assets and unlocks value for minority shareholders when a business is undervalued.

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Published on March 27, 2019
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