With IT services company Mindtree looking at “an imminent threat of hostile takeover”, reportedly from engineering company Larsen & Toubro, the software firm’s co-founder Subroto Bagchi has resigned from his government role to help fend off the takeover bid. On March 15, Mindtree had said that the company’s board will meet on March 20 to consider the proposal to buy back the fully paid-up equity shares of the company.
There are a few ways this saga could play out. Speculation is rife that L&T is in advanced stages of negotiations to buy out a 20.4 per cent stake held by Cafe Coffee Day’s founder VG Siddhartha — Mindtree’s largest shareholder. As per reports, Siddhartha has pledged almost his entire stake in Mindtree to various domestic and foreign lenders to borrow close to Rs 3,000 crore, and that he is behind schedule on the loan repayments. Failure to regularise his debt would allow the lenders to invoke his share pledge.
According to some reports, L&T has offered Rs 981 per share for Siddhartha’s stake in Mindtree, in addition to which it is also likely to announce an open offer for 31 per cent stake at that price. As per the rules, L&T’s stake buy does not compel it to make an open offer given that it is looking to acquire less than 25 per cent share.
Notably, in January, the Income-Tax Department had provisionally attached Mindtree shares owned by Siddhartha and his affiliates citing a likely tax demand nearly 16 months after the tax department had conducted searches at various offices of Siddhartha, and close on the heels of his discussions with some private equity investors for sale of his stake in Mindtree.
While the company hasn’t yet disclosed the size of the buyback, it is pegged to be around Rs 1,000 crore. Reports suggest that Mindtree could use the Rs 162 crore cash on its books along with Rs 811 crore in investments to fund the buyback.
As of December 31, 2018, foreign portfolio investors held 40.18 per cent stake in Mindtree, followed by VG Siddhartha at 20.41 per cent. The company’s founder group — Krishnakumar Natarajan, Subroto Bagchi, NS Parthasarathy and Rostow Ravanan — together hold a 13.32 per cent share in the firm. Retail investors hold 17.75 per cent stake, while mutual funds hold 8.34 per cent share in Mindtree.
On the back of news of a possible hostile takeover or a share buyback, Mindtree’s scrip opened Monday trading 1.8 per cent higher than Friday’s close at Rs 965 apiece, but later pared gains. As of 11.25am, it traded at Rs 957.65 on the National Stock Exchange.