And so, after all the drama, L&T now owns Mindtree

With the engineering major’s open offer oversubscribed, it now owns almost 60% of shares of the mid-sized IT firm

Technology firm Mindtree has come under L&T’s fold. The engineering major’s ₹5,030-crore open offer is reported to have been oversubscribed.

The offer closes tomorrow. With this, L&T would have gained control of almost 60% of the shares in what is regarded as the first hostile acquisition in the Indian IT space.

Consolidation time?

The aggressive bid by L&T portends some major events in the $160-billion Indian IT industry. Will it trigger a consolidation? Or will promoters close ranks to ward off any attempt to sneak in? A clearer picture will emerge in the coming few months.

It is ironical that Mindtree, which is proud of its motto ‘Welcome Possible,’ is now staring at what, till a few months ago, looked impossible.

It all started with L&T signing a definitive agreement to acquire 20.32% stake from coffee baron V.G. Siddhartha and two of his coffee enterprises for more than ₹3,000 crore on March 18. The deal was formalised in late April.

Besides announcing an open offer for 31%, the engineering giant bought another 8.58% in the open market at ₹980 a share, bringing its total ownership to 28.9%.

Soon, a war of words broke out between the managements of the companies. Although Mindtree launched, albeit a little late, a concerted effort to stop L&T and save the company’s ‘carefully nurtured culture’, it yielded little result. Even the panel of independent directors it set up found L&T’s offer of ₹980 per share a fair price. No wonder then, large investors in Mindtree didn’t think twice before offering their stake in the open offer.

One of the co-founders, Subroto Bagchi also quit the board. Amidst everything, its second biggest single investor Nalanda Capital sold its 10.6% stake to L&T and exited two days ago. S.N. Subrahmanyam, L&T CEO and MD, joined the Mindtree board as non-executive director. Jayant Damodar Patil, senior executive vice president, defence business of L&T, and R. Shankar Raman, its CFO, also joined the Mindtree board. The case presents a curious side as the promoters possibly had time on their hands to bring in a white knight, but still acted too late.

Cultural misfit

Their argument, that L&T was a cultural misfit and the bid sends out a wrong message to budding entrepreneurs, didn’t attract too many buyers. Meanwhile, L&T focussed its energy on Mindtree. A.M. Naik, the group chairman of L&T was on record that Mindtree was top most on his agenda. Was Mindtree a soft target for a hostile acquisition? The turn of events hints at that. In corporate history, hostile buyouts are not frequent. Here, a professionally run company has been snapped up with ease.

“Mindtree was a soft target in a way. A company started in 1999 actually took two decades to hit its first $1 billion revenue. It was suffering some kind of slowness,” said Hansa Iyengar, senior analyst at U.K.-based Ovum Consulting. Promoters hold 13.32% in Mindtree, of which the founding promoters together hold 8.96% — including Krishnakumar Natarajan (3.72%), Subrato Bagchi (3.1%), N.S. Parthasarathy (1.43%) and CEO Rostow Ravanan (0.71%).

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