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Mindtree Takeover Explained


Posted on 2019-04-09 in KNOWLEDGE PORTAL

 

Indian multinational conglomerate Larsen and Toubro is set to acquire IT major Mindtree through a hostile takeover bid. Larsen & Toubro Ltd (L&T) made an open offer on Tuesday to acquire a 31 per cent stake in IT services firm Mindtree Ltd for Rs 5,030 crore. L&T has offered Rs 980 a share in the offer that is scheduled to start on May 14 and close on May 27, the company informed the shareholders of the latter.

An open offer is essentially an offer to buy shares from the company’s public shareholders. Mindtree’s committee of independent directors has time till May 10 to give their recommendation to the company’s shareholders with regards to the open offer by India’s largest engineering company.

L&T’s offer comes on a day when independent directors of the Bangalore-based IT firm Mindtree Ltd are slated to meet, ahead of a meeting of the company’s board, to decide on whether to proceed with a share buyback proposal and also consider L&T’s open offer. L&T’s open offer comes after the engineering major agreed to buy Cafe Coffee Day founder VG Siddhartha’s 20.32 per cent stake for Rs 3,269 crore on March 18, further announcing plans to buy a total of 67 per cent in Mindtree for roughly Rs 10,700 crore. The founders of Mindtree, who together constitute 13.32 per cent of ownership in the company, are trying to ward off this ‘hostile takeover bid’ by buying back shares from public shareholders.

By definition, a hostile takeover is one where one company (acquirer) acquires another company (target) either by directly going to the target’s shareholders of by fighting to replace the management in order to get the acquisition approved. And when the target company’s management doesn’t want the deal to go through, it becomes a hostile takeover.

In this case, Mindtree’s promoters have unconditionally opposed the takeover bid by L&T and say that it is value destruction for all shareholders.

While L&T maintains that this isn’t a hostile takeover and that Mindtree will be run as an independent company, Mindtree promoters strongly oppose the takeover bid.

Usually, when a corporation is trying to acquire another, it makes an offer to gain control if it owns 25% of the organisation it is trying to acquire. However, L&T would be exploiting a loophole in the Takeover Code of the Securities and Exchange Board of India.

Using section 3, clause 1 of the takeover code, along with section 4 of the code, L&T is entitled to announce an open offer to acquire control of Mindtree.

As per this, those with 25% stake or more cannot take over a company unless they make an open offer to acquire the shares, and make a public announcement. However, the code also states whether or not one holds shares or voting rights, one cannot take control of the company unless a public announcement of an open offer to acquire those shares is made.

As per this, those with 25% stake or more cannot take over a company unless they make an open offer to acquire the shares, and make a public announcement. However, the code also states whether or not one holds shares or voting rights, one cannot take control of the company unless a public announcement of an open offer to acquire those shares is made.

Sources

1. Moneycontrol

2. The News Minute

3. Business Standard

4. The Hindu Businessline

5. The MInt







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