Engineering and construction behemoth Larsen & Toubro's open offer to buy 31 per cent stake in Mindtree, which was supposed to start on May 14, has been postponed by at least a fortnight. The company has missed its May 7 deadline to issue its letter of offer to Mindtree shareholders, reportedly due to late queries posed by the Securities and Exchange Board of India.
In a hostile takeover bid, L&T acquired a 20.32 per cent stake of Cafe Coffee Day founder V.G. Siddhartha and two CCD entities - the top shareholder in Mindtree - at Rs 980 per share on March 18. It subsequently bought additional stake in the Bengaluru-based information technology services firm, taking its total shareholding to 25.93 per cent, which will ensure it a board seat and the power to propose or block special resolutions.
Sources directly aware of the development told Mint that a few questions posed by the markets regulator on April 25, some of which required responses from Mindtree, could only be answered by L&T on Friday. This has delayed SEBI's approval to L&T's draft letter of offer to Mindtree shareholders.
Meanwhile, Mindtree's independent directors committee (IDC), which was supposed to provide their reasoned recommendation to shareholders on the unsolicited offer by L&T latest by May 10, has also withheld its suggestions.
Under SEBI's takeover code, a target company's independent directors are obliged to provide shareholders their opinion on whether to accept the acquirer's offer at least two days before the start of the tendering period for the offer. With the open offer now postponed, the IDC headed by the lead independent director Apurva Purohit has held back its opinion for the moment.
"If SEBI does not raise further queries and approves the draft letter of offer by May 17, L&T will initiate the open offer process and file its final letter of offer," a source told the daily, adding that once the draft letter of offer is approved, the IDC has to be given at least two working days to submit its recommendation and the open offer can only be launched after the minimum specified window. Hence, the entire process is expected to take at least two weeks. "The open offer may actually be launched either at the end of this month or early June," the source added.
Among the queries that the regulator posed to L&T are clarifications regarding Mindtree's dividend policy and details of the non-convertible debentures (NCDs) and shares pledged by Siddhartha and the two CCD firms with Standard Chartered Bank. L&T, in the draft letter of offer, says that an escrow account for the share purchase agreement (SPA) with Siddhartha and the two CCD affiliates has been executed on March 18, under which L&T, Mindtree and Standard Chartered Bank are the escrow agents and IDBI Trusteeship Services Ltd is the trustee.
The daily reported that the two CCD firms had issued some NCDs in the past to raise money and as per the SPA escrow agreement, IDBI has the right to revoke the pledge on the 20.32 per cent share chunk - so that they could be transferred to L&T - only after the entities clear payments of the NCD holders first. Hence, SEBI had asked L&T to furnish details of the shares pledged, names of the entities to which the shares have been pledged and details of the issuer of NCDs.
The regulator had further demanded clarification on the voting share capital of Mindtree. The draft letter of offer states the voting share capital of the target firm has been computed on a "fully diluted" basis and that the number has been taken from publicly available information. "We understand based on publicly available information that 1,351,673 convertible instruments of the target company (which include the aforementioned outstanding units under the Mindtree Employee Restricted Stock Purchase Plan 2012) are capable of being allotted during the (open) offer and have therefore considered the same for determining the voting share capital...," the draft letter states.
SEBI reportedly wanted L&T to divulge the source of this information as well as confirm that none of its directors is a wilful defaulter or fugitive economic offender. The engineering major was also asked to clarify on risk factors involved in the open offer and the current status of the various statutory approvals mentioned in the draft letter of offer, including from the Competition Commission of India.
Axis Capital and Citi Global have been appointed to manage the open offer that was slated to start tomorrow and end on May 27.