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Mergers are always difficult acts to pull off and then convincing investors of their merits when the deal is announced is not easy either. Whether the merger was actually a success or not is also something that plays out in the very long term. The easiest metric that shows up is the mathematical addition of sales and earnings, but whether the much-talked about synergy benefits took place can sometimes remain a mystery. If a company says the synergies did yield expected savings, but these were reinvested into growth initiatives, then investors may feel disappointed that it did not flow into higher earnings growth and therefore, valuations.
Today’s trading shows the initial reaction of investors of L&T Infotech and Mindtree to the merger announcement. At today's close, Mindtree’s shares were down 5.3 percent while those of L&T Infotech were down by 3.4 percent. The deal will see Mindtree’s shareholders get 73 shares of L&T Infotech in return for every 100 shares they hold. As first reactions go, they don’t seem too thrilled with the swap ratio, but this could change.
The odds are in favour of the integration process working well, as both companies have already been working together on projects. The visible benefits are in size with the merged entity now being able to bid for higher value projects as it’s now the sixth largest Indian IT company by revenue. But the key aspects to watch in this merger are cross-selling to each other’s clients as business segments don’t overlap much, extracting cost synergies and growing faster. Our research view on the merger is that it should be marginally earnings-accretive. But what’s the take on valuations? Do read.
Meanwhile, markets are still wearing a dull look due to adverse macro factors, but there’s some good news on the global food inflation front. A moderation in demand due to the price spike and weaker import demand from China appear to be cooling prices. What’s the situation in India as wheat prices are moving up? Do read our chart of the day to know more.
Investing insights from our research teamCSB Bank posts good show in FY22, but will the shine of gold loans continue?
What else are we reading?
Ruchir Sharma writes: Thanks but no Faangs — the folly of investing in acronyms (republished from the FT)
Technical Picks:Cipla, USD-INR, Colgate, KEC International, Hero MotoCorp and Silver mini MCX (These are published every trading day before markets open and can be read on the app)Ravi AnanthanarayananMoneycontrol Pro