L&T’S ACQUISITION OF
MINDTREE
Mergers and Acquisition
Group 10-
Aakash Singhal | BD21001
Arnav Kumar | BD21065
Sharath R | BD21038
Umang Beswal | BD21050
Vendansh Pujara | BD21052
Contents
Executive Summary: ............................................................................................................................... 2
Problem Identification: .......................................................................................................................... 2
L&T’s view on the merger : .................................................................................................................... 3
Mindtree’s view on the merger: ............................................................................................................ 4
Conclusion: ............................................................................................................................................. 4
Executive Summary:
The acquiring company, Larsen & Toubro Limited, is a significant technology, engineering,
construction, manufacturing, and financial services conglomerate with global activities. It is
an Indian publicly traded corporation. The target business, Mindtree Limited, on the other
hand, is a publicly traded business with its headquarters in Bangalore. A group of ten IT
professionals formed the software service company in 1999. It went public in 2007 and was
bought by L&T through a hostile takeover in 2019.
In contrast to the promoters of the target firm, who combined controlled only 13.32% of the
company's shares, V. G. Siddhartha, a non-executive director of Mindtree and the founder-
promoter of Coffee Day Enterprises ("CDE"), held 20% of Mindtree shares personally and
through his companies. Siddhartha asked L&T to buy their shares since he and his business
were in dire need of cash and had to sell up his stakes in Mindtree. L&T significantly
increased its stake in the target firm by purchasing Siddhartha's shares in 2019 at a price of
Rs. 981/- per share. Then L&T made an open bid to buy the remaining 31% of the shares.
The Takeover Code, also known as the Substantial Acquisition of Shares and Takeover
("SAST"), Regulations (2011) of the Securities and Exchange Board of India ("SEBI"),
however, stipulates that only those with 25% to 75% of the voting rights in the company
may make a voluntary open offer. L&T was successful in acquiring shares from the
secondary market through open market acquisitions while the matter was being considered
by SEBI, increasing its ownership to 28.9% and ultimately winning SEBI's clearance.
According to Regulation 3(1) of the Takeover Code, an acquirer is required to make a
mandatory public announcement of an open offer for purchasing shares from the public
shareholders when they acquire 25% or more voting rights. Due to the major shift in the
company's control, management, and promoters, the public shareholders now have a
chance to sell their shares. As a result, L&T announced publicly that it will make an open
offer for 31% of Mindtree's total voting share capital in compliance with the law. In a
nutshell, L&T bought about 20% of the shares directly from Siddhartha and his companies,
about 9% of the shares through an on-market purchase, and finally 31% of the shares
through an open offer, bringing its total shareholding to 60% and giving it control over the
target company's board and management.
Problem Identification:
Bad media:
Even before the completion of the acquisition of Mindtree, L&T was facing huge media
backlash. There were allegations against the firm such as “hostile takeover” and
“destruction of Mindtree culture”. It was an arduous task to tackle this backlash as the same
could have negative effects on the deal.
Resistance from promoters:
Mindtree promoters were completely against the acquisition of the company by L&T so
much so that they even considered a share buyback so that L&T would have to pay higher
price for the same shares. They believed that this acquisition would result in destruction of
the unique Mindtree culture and make it lose its natural speed.
Culture incompatibility:
While Mindtree was a company focused on promoting creativity, had a mostly informal
culture where work conditions were to promote work life balance for employees, L&T was a
national giant which was highly process driven with a highly formal and structured
leadership.
Confusion and chaos:
While Mindtree promoters were against the deal and running campaigns against the deal
and continuously looking for options to fend off L&T, L&T was sending out the message that
their view and vision for Mindtree was completely different from what was being projected
by the Mindtree promoters. In such an environment, it was difficult for the shareholders to
decide on their move.
L&T’s view on the merger :
The biggest engineering and construction firm in India, L&T, already has a robust IT services
and technology business. L&T infotech provides software services, and L&T Technology
Services provides engineering and R&D services. The two businesses' combined revenues in
the preceding year exceeded Rs. 14,500 crore.
According to Subrahmanyam, the group's primary business—large infrastructure projects
like airports, bridges, and power plants—generates PAT of 7%. It hopes to make greater
revenues from the less risky service industry. One of the first businesses to recognise and
embrace the advantages of emerging digital technologies like artificial intelligence,
automation, and machine learning was Mindtree. Digital technology accounted for 49% of
the company's revenue in the January-March 2019 quarter. The largest IT company in India,
Tata Consultancy Services, saw a mere 32.2% of its income from digital sources during the
same quarter.
L&T itself has made extensive use of modern technological tools in the engineering,
building, and other industries. L&T-Nxt, a new technology platform that focuses on
establishing a business via the application of cutting-edge technologies, was introduced by
the corporation on the strength of these advantages. According to L&T chairman A.M. Naik,
there is a "great opportunity" ahead as more businesses embrace Industry 4.0 (the fourth
industrial revolution) and use smart goods, systems, and processes to create more value.
"While it is too soon to discuss financials, L&T-Nxt is ideally positioned to gain a sizable
market share and develop into one of the primary forces behind L&T's development in the
long run," the statement reads.
Other synergies exist between different service sectors. For instance, L&T Infotech has a significant
presence in the banking, financial services, and insurance industries, which account for 47% of its
sales, with manufacturing coming in second (15.9 per cent). At Mindtree, however, the industries
that contributed most heavily were media and high-tech (39.6%), along with retail and CPG.
Mindtree’s view on the merger:
The takeover was opposed by the Mindtree promoters, and the fact that L&T pursued the purchase
despite resistance from the target company's promoters made the transaction tense. On March 18,
2019, the promoters of Mindtree issued a press release criticising L&T's takeover offer, claiming that
it would reverse all the advancements made over the previous 20 years. In addition, the
management was reluctant to join a business that was not like Mindtree in terms of culture. It was a
instance of the founders being unable to let go of their emotional connection to the business.
Conclusion:
The opposition of Mindtree management to the takeover by L&T was somewhat unjustified.
The management of Mindtree was not ready to give up control. The changes being
proposed by L&T management after the acquisition were not drastic and in no way
hindering the present culture and functioning of Mindtree. The L&T management managed
to get their side of their story to the media and shareholders without creating any hue and
cry.
