Mindtree takeover plan: L&T explores backchannel talks for bid

Larsen & Toubro (L&T) is learnt to have reached out to Mindtree founders through backchannel negotiations. Sources in the know said that after its public standing on the issue, which played out in the media, L&T is keen to explore a middle path that will not only help it in addressing Mindtree’s concerns but also in increasing the acceptance of its bid to take controlling stake in the firm.

“Backchannel negotiations have started from L&T’s side through some personalities who are acceptable to both parties. However, this round is driven by more mid-level officials, a few investment bankers, and legal experts,” a source said. “Presently, the chief executive officer of L&T and founders of Mindtree are not involved,” the person said.

Attempts to reach both L&T and the Bengaluru-headquartered IT services firm’s managements didn’t yield any result till the time of going to press. However, sources close to Mindtree denied of any such engagement between the two firms at the current juncture.

L&T on last Monday made a takeover bid over Mindtree with a multipronged strategy to buy around 67 per cent controlling stake for about ~10,733 crore. While L&T was of the view that the company’s bid to acquire the controlling stake in Mindtree should not be seen as a hostile attempt, the IT services firm strongly argued against the deal, saying the acquisition was not in the interest of its stakeholders.

The founders of Mindtree had also claimed they had the unequivocal support from key foreign institutional investors, including Nalanda Capital, which holds around 10 per cent in the IT firm. “Our institutional investors and stakeholders are all backing us to the core. We have delivered value and built a high-quality, high-performance company, and shareholders will decide their move,” Mindtree’s Executive Chairman Krishnakumar Natarajan had said in a press conference.

Experts said the negotiations between two could revolve around a couple of contentious points. "Firstly, Mindtree's continuance as an independent entity is the most critical issue for founders of the IT services firm. So, any consensus without addressing this point will not be successful,” said an IT outsourcing advisor.

“Also, what will be the role of founders in the next scheme of things if L&T acquires controlling stake is another important aspect of negotiation,” the person added. 

Some of the solutions being discussed include the continuance of the founders as shareholders of Mindtree as well in the new entity in case L&T decides to merge the firm with any of its IT firms, and allowing them to lead the business.  According to financial sector experts, apart from the hike in the current offer price of Rs 980 per share, hefty retention bonus could be another point of negotiation. 

While such backchannel negotiations are on, Mindtree board is likely to take a call on the proposed buyback and open offer in its next meet scheduled on March 26. Earlier, the IT services firm had deferred decision on the buyback proposal in its March 20 board meet. Given the founders’ opposition, the role of independent directors of Mindtree will be keenly watched in the next board meet.