India begins a new trading week with a hostile takeover battle between Mindtree's founders and L&T

  • Mindtree shares open the week with gains of over 2%
  • L&T is set to make a hostile bid as the company's founders refuse let go of control
  • Company's strategic investor, coffee baron VG Siddhartha, is expected sell his 21% stake to L&T

Indian technology services company Mindtree, backed by coffee baron VG Siddhartha, is at the centre of a takeover battle between the company's founders and one of the country's biggest conglomerates, Larsen and Toubro (L&T).

Shares of Mindtree opened the day up over 2% on Monday (March 18) as investors expect the battle for control between the hostile suitor L&T, which has proposed to buy out Siddhartha's 21% stake in the company, and the existing leadership determined to keep control of the company. If L&T pulls it off, it would be the first hostile takeover of an Indian IT company.

The founders, Krishnakumar Natarajan, Subroto Bagchi, NS Parthasarathy and Rostow Ravanan, together own 13.32% stake in the company and they are so reluctant to let go of the company that Bagchi left a government job to avert a hostile takeover of Mindtree by L&T.

The board of directors informed the stock exchange on Friday that it will consider a share buyback in a meeting on March 20. The move has come after the founders reportedly could not find private equity investors to counter L&T's offer.

L&T reportedly plans to spend $1 billion, including an open offer to minority investors, to gain controlling stake in the company. Indian takeover laws mandate that the suitor must buy shares worth 26% of the target company from the open market, if the stake in the target exceeds 25%.

L&T's offer price for another 31% stake in Mindtree may be around ₹980 apiece, a 4% premium to Friday’s closing price, the Economic Times reported.

A share buyback by the existing board of directors at Mindtree would mean the company will use a part of its existing ₹2.8 billion reserves to thwart L&T's bid. Investors may not like that, especially, at a time when there is premium offer on the table.

On the other hand, L&T Infotech, which is the conglomerate's IT subsidiary, has already lost a lot of share value since January when the rumours of the takeover surfaced. Investors fear merging with Mindtree, which has only one large client that is Microsoft, may hurt the performance of L&T Infotech, whose stock price has more than doubled in the last three years and has a significantly wider profit margin of 16% compared to Mindtree's 10%.

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