Facing opposition to its acquisition of Cafe Coffee Day (CCD) founder VG Siddhartha's stake in Mindtree, Larsen & Toubro (L&T) said the deal should not be considered as a hostile takeover. Instead, said SN Subrahmanyan, its Managing Director and Chief Executive Officer, said the engineering behemoth is approaching this acquisition in good faith, with ‘dil’ and ‘pyaar.’
“There are certain emotions and trepidation involved, but business is business. Emotions do play a part, but emotionalities have to be overcome as we go forward,” Subrahmanyan said at a press conference held in Mumbai, a day after L&T announced purchase of Siddhartha's 20.32 percent stake in Mindtree, at Rs 980 per share, for Rs 3,269 crore and also made an open offer for an additional 31 percent stake in the midcap IT services firm for Rs 5,030 crore in an all-cash deal.
“We are trying to do this with pyaar and will continue to look at this as something we are doing from our dil,” he added.
This statement comes in the wake of Mindtree’s founders condemning and opposing L&T’s hostile bid — a first in the Indian IT industry —to take over the Bengaluru IT services company.
However, Subrahmanyan said there is room for negotiation with Mindtree's promoters.
Speaking on the sequence of events, he said Siddhartha had approached L&T three months ago to sell his stake in Mindtree. “We looked at picking up stake in Mindtree after three-to-four rounds of meetings. Siddhartha wanted to sell stake to a company with similar values.”
In a statement on March 18, L&T said it had also placed an order with its broker for an on-market purchase of up to 15 percent of Mindtree's shares at Rs 980 apiece. This will take L&T's Mindtree shareholding to nearly 65 percent, valuing the deal at Rs 10,733 crore.
“The Competition Commission of India is the only approval we require in India. We need some overseas approvals as these companies operate globally,” said R Shankar Raman, Chief Financial Officer, L&T, adding that they expect the regulatory approval to occur in 30-45 days.
The main takeaway from the conference was that Mindtree will remain a separate entity and not be merged with L&T Infotech. “We would have to leverage L&T Infotech, if we had carried out the acquisition through it. Our intent is to keep both of them separate. L&T's logic behind Mindtree's stake buy is to expand its services business, not integrate it with L&T Infotech,” Subrahmanyan said.
L&T Infotech is predominant into banking and insurance, whereas Mindtree focuses on areas like retail and hospitality.
However, Raman did not rule out a future merger in between the two entities, adding: "The market and developments will decide when, if at all, Mindtree and L&T Infotech can be combined."
At present, the primary reason to keep both entities separate was to protect interests of minority shareholders, he stated.
Open offer
Raman said they cannot buy or trade in Mindtree stock until the company receives necessary approvals. “Over and above Siddhartha’s 20 percent stake, we need to go for an open offer to increase our stake. We don’t know what the response will be for the open offer, market dynamics will play out,” he said.
Scope of conflict
Ruling out conflict between L&T Infotech and Mindtree, Raman sees minimal scope for the same as both companies are about a $1 billion each. In fact, he sees enough room for growth. “Even in the few common clients, both companies are working at different ends. If anything there will be synergies. When they reach $5 billion each, they could possibly start to look at each other’s turf,” he added.
Rationale for the Mindtree acquisitionSubrahmanyan said that a large chunk of L&T’s revenues comes from the engineering, procurement & construction (EPC) and services businesses. "Net profit margin in the service business is around 15-16 percent versus 6-7 percent for the EPC business. That's why, we wanted to make acquisition in the services sector and hence considered Mindtree," he explained.
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