Mindtree taps institutions to fend off L&T's hostile takeover bid

Support of key institutional investors crucial in case of an open offer

The Mindtree founders are reaching out to top clients and engaging with key institutional investors to fend off attempts by engineering major Larsen & Toubro (L&T) from making a hostile takeover bid, sources in the know said. 

Last week, the Bengaluru-headquartered firm said its board would consider a share-buyback proposal in its next meeting scheduled for March 20. The announcement of a possible share repurchase has come amid reports of L&T’s board giving the green signal to buy Café Coffee Day founder V G Siddhartha’s 20.41 per cent stake in Mindtree.

As corporate action like a buyback usually pushes up the share price, many analysts had seen it as an attempt by the management to make it costlier for any acquirer to take control of the company, apart from rewarding existing shareholders.

But apart from the price play, the management of the infotech (IT) services firm is actively talking to key institutional investors to garner support in case there’s an open offer. Currently, Pulak Prasad-run Nalanda Capital holds 10.61 per cent in Mindtree, while Akash Prakash-led Amansa Holdings owns 2.77 per cent.

Singapore-based Arohi Asset Management Pte Ltd, which manages the Ontario Teachers’ Pension Plan Board’s stake of 1.22 per cent, is another major foreign institutional investor in the company.

“The founders have reached out to all major institutional investors, including Nalanda Capital, as their support will be crucial in the case of management change,” a corporate governance official said. He, however, added a good premium over the market price would be the key deciding factor.

Another source tracking the development pointed out that Mindtree is in touch with its top client base in the US and other geographies to get validation of its work for bolstering its case before the shareholders. This is significant, as customer stickiness is critical in the IT services industry, an outsourcing advisor said.
 

“The founders have the zeal to fight. They don’t want to leave the company, which they have built painstakingly over the years, towards the path of value destruction,” a source familiar with the development said. “So, all defensive strategies are being explored by them.”

However, many believe that price is the critical element of ring-fencing the company from a takeover bid. “The management knows that price is the real game changer. If L&T tries to gain majority control in Mindtree at a significantly higher price than the market rates, its shareholders will ask L&T’s management about its implications,” another source said.

Siddhartha, who is the single-largest investor in Mindtree, is in advanced stages of discussion with a clutch of entities, including private equity and L&T to offload his stake in the IT firm. But, with the founders’ reluctance to shed their stakes of around 13.32 per cent, the situation has turned tricky. 

Earlier in an interaction with Business Standard, Mindtree’s Executive Chairman Krishnakumar Natarajan hinted at the founders’ desire to drive the company in its next growth phase. “As far as strategic direction is concerned, we (the founders) have the conviction and confidence in the business and have a point of view as to how the future should be,” Natarajan had said.

The IT services industry globally has seen very few instances of hostile takeover so far. Analysts say as IT services is a human resource-intensive business, any hostile takeover may create integration issues in terms of people and customers.