“The Boards of Directors of LTI and Mindtree at their respective meetings held today approved a composite scheme of amalgamation of both these independently listed IT services companies under the Larsen & Toubro Group," the press released stated.
The combined entity will be known as “LTIMindtree”.
The transaction regarding the LTI and Mindtree merger is subject to shareholder and regulatory approvals, LTI has said. Upon the merger coming into effect, all shareholders of Mindtree will be issued shares of LTI at the ratio of 73 shares of LTI for every 100 shares of Mindtree.
“The new shares of LTI so issued will be traded on the NSE and BSE. Larsen & Toubro Limited will hold 68.73 percent of LTI after the merger," said L&T Infotech in the press release.
It was announced that Mindtree CEO Debashis Chatterjee will lead the combined entity of "LTIMindtree", while L&T Infotech CEO and MD Sanjay Jalona resigned due to personal reasons.
L&T Group Chairman AM Naik on the merger
AM Naik, Chairman, L&T Group, speaking on the merger, said, "This merger represents our continued commitment to grow the IT services business in line with our strategic vision. The highly complementary businesses of LTI and Mindtree will make this integration a ‘win-win’ proposition for our customers, investors, shareholders, and employees.”
The L&T Group Chairman also said, "There may be some overlap in the businesses between Mindtree and L&T Infotech but together they will be strong."
Naik further stated, "The initial disturbance that was created by owners was on concerns that it was a hostile takeover. It was not, we were approached by one of the shareholders. The bad publicity made people think if this will be properly Integrated."
He also added, "There is no cultural issue between L&T Infotech and Mindtree. They strengthen each other."
“We are confident that the proposed merger will help us build on the combined strengths of both these organizations to unlock synergies through scale, cross-vertical expertise, and talent pool. This will help us emerge as a partner of choice for large-scale tech transformations and create a distinctive employee value proposition," said LTI vice-chairman SN Subrahmanyan.
"Both companies will operate individually till the merger happens. Once the integration is done, the team will decide the focus areas. Sanjay Jalona has cited personal reasons to step down. He has done a lot for the company and we are proud of him," added Subrahmanyan.
The merger of the two publicly listed software firms comes at a time when large IT outsourcing firms are expanding into areas such as cybersecurity, automation, and machine-learning support, moving beyond lower-margin traditional back-room services. That apart, software companies have been witnessing a surge in demand from businesses embracing digitisation, which accelerated during COVID-19.
According to industry experts, the combined entity will enable it to tap into broader market prospects, reduce costs and lower risk.
After the merger, the aggregate revenue of the combined entity will be around $3.5 billion. LTI has a market capitalisation of Rs 1.03 lakh crore, whereas Mindtree has a market capitalisation of Rs 65,285 crore.
By market capitalisation, the combined entity will surpass Tech Mahindra to become the fifth-largest IT services provider. The firm will employ over 80,000 people, including 4,000 sales and support personnel. Currently, TCS ranks first among IT firms with the highest market valuation, followed by Infosys, HCL Tech, Wipro.
This merger is in line with L&T's strategy of becoming more service-oriented. If the portfolios of the two companies are looked at, the main focus area of Mindtree includes communications media and technology, retail, consumer packaged products, and manufacturing, whereas LTI's most important verticals include banking, financial services, and insurance.
Prior to the merger, Larsen & Toubro owned 61 percent of Mindtree and 74 percent of LTI.
Both Mindtree and LTI have grown significantly in the previous two years under the leadership of Debashis Chatterjee and Sanjay Jalona, respectively. Mindtree, the midcap IT company on April 18, reported a consolidated net profit of Rs 473.1 crore for the fourth quarter ended March 2022, registering an on-year growth of 49 percent. In the corresponding quarter last year, the company posted a net profit of Rs Rs 317 crore. And, L&T Infotech, on April 19 reported a consolidated profit after tax (PAT) of Rs 637 crore for the quarter ended March 2022, up 17 percent from Rs 545 crore in the corresponding quarter of the previous financial year.In 2019, L&T Group successfully completed a hostile takeover of Mindtree. And, the talk of a merger between the two IT companies had been there for a long time.