The special dividend of 200 percent announced by Mindtree could possibly make L&T revise its offer of Rs 980 per share, say experts.
On April 17, Mindtree approved an interim dividend of Rs 3 per share, a final dividend of Rs 4 per share and a special dividend of Rs 20 per share to celebrate the twin achievements of exceeding $1 billion annual revenue milestone and the 20th anniversary of the company.
This has raised questions about whether the company can deviate from its ordinary course at a time when L&T open offer is in the pipeline and the impact it would have on the open offer.
Amit Tandon, Managing Director, Institutional Investor Advisory Services, pointed out there is nothing illegal about the dividend declared by the company and it is in line with corporate governance. But in light of the special dividend, there is a possibility of price revision by L&T.
“As Mindtree has declared a special dividend, L&T has the right to revise the offer. However, this needs to be balanced by the fact that they themselves will receive some of the dividend proceeds,” he added.
The construction major L&T acquired majority stake of 20.32 percent in Mindtree in March. The stake belonged to VG Siddhartha and Coffee Day Enterprises he owns. L&T upped its offer to acquire an additional 46 percent through an open offer for 31 percent stakes and 15 percent on-market purchase.
The open offer for L&T commences on May 14. The Committee of Independent Directors set up by Mindtree will give recommendations to stakeholders on whether to sell their stake or not by May 10.
Commenting on the special dividend announced, Rostow Ravanan, CEO, Mindtree, said the dividend was not meant to change the open offer price of L&T and is in line with corporate governance and capital allocation policy of Mindtree. “It was no way meant to hurt the interest of shareholders. It should not make any difference,” he added.
L Badri Narayanan, Partner, Lakshmikumaran & Sridharan Attorneys, agrees to some extent. Narayanan explained, “Considering the quantum of the dividend declared, it may not have a significant impact. Further, since this seems like a strategic acquisition, this may not have an impact on the strategy of L&T.”
According to Clauses 26(1) & (2) of Substantial Acquisition of Shares and Takeover (SAST) regulations of SEBI, the business of the target company during the open offer period has to be conducted in the ordinary course as per the past practice.
Going by the company’s past practice, Mindtree has declared special dividend on four separate occasions in the last 10 years in the range of Rs 1 to Rs 5 per share marking the completion of its 10 and 15-year anniversaries, 10 years since IPO, and crossing $100 million in revenue.
According to legal experts, the company is well within its limits to declare the special dividend looking at the past practice.
Given the fact that the company is completing its 20 year anniversary, Narayanan said the dividends could be considered in the ordinary course of business, as Mindtree has been declaring such dividends during special occasions or certain times.