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Last Updated : May 02, 2019 04:06 PM IST | Source:

The questions over L&T's open offer for Mindtree continue

Even as the time for the recommendation draws close, corporate governance experts have raised questions about the legality of the move. Mindtree said it has asked for clarification from Securities and Exchanges Board of India (SEBI) on the legality of such offer.

Swathi Moorthy @kpswathi
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Even as engineering behemoth Larsen & Toubro formalised its 20.32 percent stake purchase in Mindtree from VG Siddhartha on Tuesday, questions remain over the legality of the open offer the company proposed and its offer price of Rs 980, say experts.

L&T signed a definitive agreement to buy VG Siddhartha and his coffee enterprise’s 20.32 percent stake in Mindtree for Rs 3,300 crore in March. The engineering major also placed open market purchase for 15 percent and proposed an open offer for 31 percent of shares. This would take L&T’s total share in Mindtree to 66.32 percent for a total of Rs 10,700 crore.

As per the SEBI’s Substantial Acquisition of Shares & Takeovers regulations, a company can trigger the open offer only when they have crossed the threshold of 25 percent voting rights. Mindtree said it has asked for clarification from Securities and Exchanges Board of India (SEBI) on the legality of such offer.


Rostow Ravanan, CEO, Mindtree, in a recent interaction with Moneycontrol, said, “The clarification we have asked SEBI is that law mandates an open offer only when you have 25 percent shareholding. With less than 25 percent holding how can you trigger the open offer right now?”

JN Gupta, former SEBI executive and founder, Stakeholders Empowerment Services, said in his report that open offer gets triggered only if an order placed with the broker crosses the threshold of 25 percent voting rights, which L&T did not have at the time of launch of the offer.

The report explains that though the company has proposed open market purchase of 15 percent through a broker, it cannot be put into effect immediately since the regulatory approvals need to be in place.

L&T recently received a nod from Competition Commission of India (CCI) for its Mindtree takeover bid. According to a Mint article, the company is looking to buy an additional 6 percent share from open market and will be able to cross its basic target of acquiring at least 26 percent within a week.
According to another source, as per regulations a company intending to make an open offer can still make an open offer even if it does not have over 25 percent stake in the target company.

“As per section 3(1) and 4 of the SEBI regulations, anyone crossing 25% is obligated to make an open offer. Anyone intending to acquire control can also make an open offer, even if its current holding is just like 1 percent at that time,” the source said.

The source further added, “L&T had done a SPA to buy 20.32 percent from VG Siddhartha and also placed an order through brokers to buy 15 percent from the market. Taken together these clearly express the intent and commitment to acquire control in the target company."

"As per SEBI regulations, if the trigger transactions are a combination of market order and Share Purchase Agreement, then the announcement for the open offer has to be made on the date of the first of the two events, which is what L&T has done,” the source further elaborated.

The publication is awaiting official response from L&T for the same. The article will be updated based on inputs from the company.

Another issue raised is that of price of shares. Ravanan said, “Acquisition ought to have happened in a method that discovers price in a fair and transparent way for the benefit of all shareholders.” He pointed out that Mindtree’s remaining shareholders are not getting market-discovered price.


“L&T did a bilateral deal with one person who had their own issues and you can’t impose the same price on others. From shareholder reaction point of view, shareholder associations have written to us asking that question. There is a shareholder interest kind of an angle to it as well,” he added.

Some analysts were of the view that Mindtree’s announcement of special divided for the fiscal FY19 might make L&T revise its offer price of Rs 980 per share. It is not clear yet if L&T would revise its offer.

Mindtree has announced total divided of Rs 27 per share in the light of company’s 20th year anniversary and crossing $1 billion in revenue.

The publication is awaiting comments from L&T on the same. The story will be updated accordingly.​

In the meantime, Mindtree’s committee of independent directors are evaluating the open offer and will give its recommendations to its stakeholders by May 10. L&T’s open offer will commence on May 14 and will close on May 27. ​

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First Published on May 1, 2019 03:40 pm
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