Mindtree board to consider share buyback to avert hostile bid by L&T Infotech
BusinessToday.In March 16, 2019
Mindtree has taken an unusual step of calling a board meeting next week amid reports that L&T Infotech is planning to buy stake in the IT services company.
In a filing to exchange on March 15, Bengaluru-headquartered company said that its board will meet on March 20 to consider the proposal to buyback the fully paid-up equity shares of the company.
This development comes at a time when there is a speculation in the market that engineering conglomerate Larsen and Toubro (L&T) is in advanced talk to buy out a 20.4 per cent stake held by Cafe Coffee Day's founder V.G. Siddhartha- the largest shareholder in Mindtree.
According to a Bloomberg report, Mindtree had cash worth Rs 162 crore and investments worth Rs 811 crore, as of December 2018, which can be used for the potential buyback.
If the board approves share buyback proposal, Mindtree's founding promoters, who together own around 13 per cent, would be able to avert a possible hostile bid by L&T Infotech. It could also push the potential acquirer to offer an aggressive competing price to the public shareholders than that offered by Mindtree promoters for the buyback, reported Mint.
Mindtree promoters, including the four founders of the company Krishnakumar Natarajan, Subroto Bagchi, N.S. Parthasarathy and Rostow Ravanan, collectively hold a 13.32 per cent stake in the firm and have been rebuffing M&A overtures.
Sources aware of the development told the leading daily that India's largest engineering company is set to sign a binding agreement to close the deal with Siddhartha in the weeks ahead, which could trigger a hostile takeover bid, leading to an open offer by L&T to increase its stake to 51 per cent. If this comes to pass, Mindtree's current management will lose control of the company.
According to the daily, the CCD founder had pledged almost the entire stake that he held in Mindtree along with his affiliate firms to several domestic and foreign lenders to borrow close to Rs 3,000 crore. "He is, however, behind schedule on repayments for several of these loan facilities taken by pledging shares," said a source. "If he is unable to regularise the accounts, it could lead to invocation of the share pledge by the lenders."
Edited by Chitranjan Kumar