The Indian multinational corporation Larsen and Toubro, through a hostile takeover bid, is fixed to acquire IT major Mindtree. It reached to a share purchase agreement with Cafe Coffee Day founder VG Siddhartha on Monday to buy from him and his two affiliate companies 20.3 percent stake in the company. L&T will purchase this shareholding at a price of Rs 980 per share, roughly Rs 32.69 billion.
What is a Hostile Takeover?
When the company set to acquire another, the acquirer externally acquires majority shareholding, and changes administration to lay control over the company being acquired, its called a Hostile Takeover. The company being acquired however isn’t does not willfully wants to give in but is forcefully taken over through share transfers.
The total trade is going to cost about Rs 10,733 crore to L&T. It currently has Rs 15,000 crore cash reserves.
How is L&T- Mindtree a Hostile Takeover?
With Mindtree’s promoters, Krishnakumar Natarajan, Subroto Bagchi, NS Parthasarathy, and Rostow Ravanan — strongly opposed the takeover, making it one of India Inc.’s largest hostile takeovers in the history.
Clearly, the company does not want to be taken over, as it believes that the culture built over ts 20 years of history will be sabotaged by this takeover. Its founder deems the company to be more than just an asset to be bought and sold.
“A hostile takeover by Larsen & Toubro, unprecedented in our industry, could undo all of the progress we’ve made and immensely set our organisation back,”
The promoters during an interaction with the press in Bangalore displayed their displeasure at the recent turn of events. They questioned L&T
“You are a company with a turnover of ~120,000 crore rupees. You are 18 times our size. Why can’t you build a great technology business with all your resources and capability without decimating another organisation?”
Further, the promoters feel that the employees will leave the organization and the clients may also take the business somewhere else.
How is L&T Carrying out the Takeover?
Usually, when a company tries to acquire another, it makes an offer to gain control if it owns 25 percent of the organization it seeks to acquire. L&T would, however, exploit a technicality in India’s Securities and Exchange Board’s Takeover Code.
Whereby it can make an open offer of acquisition, without even owning a 25% stake in the company. Out of nowhere, they are acquiring a company by collaborating with its largest shareholder, V G Siddhartha who has a 20.3% stake. L&T is likely to raise it to 66.3 percent through an open offer and by buying shares from the market.
Why does VG Siddhartha want to sell his stake?
V G Siddharta is the founder of Cafe Coffee Day. Coffee Day Enterprises, as a company, has a total debt of Rs 6,500 crore as of September. Siddhartha wants to sell his shares in order to repay the debts. His share in Mindtree through his company is worth INR 3100 Crore. Most of these shares have been pledged with banks like Standard Chartered, Edelweiss, Axis Kotak Mahindra, etc.
By selling his shares, he will be able to pay off a significant part of the debt.
Why does L&T want Mindtree after all?
According to L&T, the deal started when Siddhartha approached them to sell his stake in the company. While they initially were neutral towards this idea, they later changed their minds.
L&T already has a listed IT company L&T Infotech and believes Mindtree will complement the existing business. While L&T Infotech is predominantly into banking, Mindtree focuses on areas such as retail and hospitality.
L&T MD and CEO Subrahmanyan has maintained that Mindtree will remain independent and can function just as it does. Larsen & Toubro’s chairman AM Naik spoke to the press, where he expressed that L&T has been mindful of its employee’s concerns and duly founded an Employee trust to look over matters related to employee welfare.
While Mindtree’s promoters have clearly expressed their dissent from the said mergers on the grounds that it does not fit into their strategy, nor are they positive about the company’s future under L&T. However, none of this will deter the big shark from carrying out the business.
Mindtree will expand L&T’s business, and also their market share. This will be a big boost for the later as they will now foray into retail and hospitality, which was earlier not their forte. In this battle of mergers & acquisitions, we hope the employees and the clients stay intact.
This also brings us to acknowledge that the company is as strong as its thick shareholders. Had Siddhart not been into debt, Mindtree would not have this situation. This turn of an event may give food for thought to other companies to keep a tab on their shareholder’s financial obligations from time to time.
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