Engineering and construction giant Larsen & Toubro says its proposed takeover of mid-size software services exporter Mindtree is part of its plan to scale up services business, but says it should not be looked at as a hostile takeover. Rather, L&T CEO and MD S.N. Subrahmanyan says its out of pyaar (love) and the company is doing it from its dil (heart).
Subrahmanyan also said that it was V.G. Siddhartha, promoter of Coffee Day Enterprises and investor in Mindtree, who had first approached L&T to sell his stake three months ago and L&T had taken the decision to acquire it after a long consideration.
“When promoter, founders over a period of time find that one of the important promoter or initial investor moves out and wants to place his stakeholding in another house, there are certain emotionalities and trepidations involved. But, business is business, emotions do play a part, but emotionalities have to be overcome as we go forward. What we are trying to do is with pyaar and we will continue to look at it as something, which we are doing from our dil. We would like and intend to take it forward in the same manner and purpose,” he said on Tuesday.
The Mumbai-based L&T entered into an definitive agreement with Siddhartha and related entities Coffee Day Trading and Coffee Day Enterprises to acquire 20.32 per cent stake in Mindstree at Rs 980 a share, aggregating to about Rs 3,269 crore. L&T has also announced an open offer to minority shareholders to purchase an additional 31 per cent stake in Mindtree at Rs 980 a share and it will also look to buy up to 15 per cent from the open market.
“About three months back, Siddhartha, promoter of Cafe Coffee Day and one of the significant shareholders of Mindtree did approach us and asked us if we would be interested in looking at his shareholding in Mindtree. From our point of view, it was more a lookout at how to buyout a shareholding, if we had not taken a look at, would any way have gone to somebody else, because Siddhartha for his reasons of business and finance was intend on selling the shareholding,” said Subrahmanyan.
Mindtree promoters have said they would unconditionally oppose the hostile takeover bid by L&T.
“The attempted hostile takeover bid of Mindtree by L&T is a grave threat to the unique organisation we have collectively built over 20 years,” Krishnakumar Natarajan, Subroto Bagchi, Parthasarathy N.S. and Rostow Ravanan said in a joint statement.
“Since we started the company in 1999, we have built a rock-solid organisation that outperforms its peers in IT services, differentiates and innovates through digital, and consistently delivers strong financial results and favorable returns to our shareholders...We remain 100 per cent committed to our long-term vision of building an independent company,” the promoters said.
L&T already has a presence in the information technology space through L&T Infotech and L&T Technology Services. The services business offers far better profit margins than L&T’s traditional construction business. The company sees Mindtree as a platform to scale up the services business and sees lot of synergies.
“L&T Infotech is predominant in the banking, manufacturing, oil and gas and insurance kind of business. Mindtree is into CPG (consumer packaged goods), retail, hospitality, travel and the technology space. For us, it made enormous sense from that point,” he said.
Mindtree promoters, however, see no value in the deal.
“We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders,” they said.
Subrahmanyan tried to reassure Mindtree’s stakeholders that there were no plans to integrate Mindtree into its existing companies and it would be run as a separate company.
“Mindtree with our investment there, will be run as an independent company with its board, with its management and what L&T at best would do is provide board oversight, management connects, value additions...That is the purpose and intent right now,” he said.
That was also a reason that L&T chose to invest in Mindtree directly and not through its software services arm L&T Infotech.
“We are not planning integration. Mindtree will be kept as Mindtree. At the moment its purely an investment,” said Subrahmanyan.
On Tuesday, L&T shares were trading 1.7 per cent lower at 1,355, even as the wider BSE Sensex was up 0.6 per cent. Mindtree shares were down 2.1 per cent at Rs 942.
