Mindtree Ltd’s independent directors will meet ahead of the company’s scheduled board meeting on Tuesday to advise its board on whether to proceed with the share buyback proposal. The independent directors will also consider Larsen and Toubro Ltd’s (L&T’s) offer to buy shares from public shareholders of the Bengaluru-based software services company.
The founders of Mindtree, who together own 13.32% in the company, are trying to fend off a hostile takeover bid by L&T, India’s largest engineering company, by buying back shares from public shareholders. L&T, which agreed to buy Café Coffee Day founder V.G. Siddhartha’s 20.32% stake for ₹3,269 crore on 18 March, has announced plans to buy a total of 67% in Mindtree for about ₹10,700 crore.
Apurva Purohit, Mindtree’s lead independent director and chairperson of company’s nomination and remuneration committee, said the independent directors’ committee would deliberate on the basis of independent advice and come out with recommendations, following due process.
Mindtree’s board meeting on 19 March, which was supposed to consider the share buyback proposal, remained inconclusive.
“No decision has been taken in the board meeting (on 19 March) and everything is speculative and baseless,” added Purohit.
Mindtree’s board is scheduled to meet again today to consider the buyback proposal and the company’s quarterly financial results.
Mindtree shares closed at ₹940.25 apiece on the BSE on Monday.
As of December-end, Mindtree had total paid-up capital plus free reserves worth ₹3,165 crore. A company can buy back shares worth only 10% of this capital without shareholders’ approval. It can purchase up to 25% of the capital with 75% shareholder approval. This means that Mindtree can buy shares worth only around ₹317 crore without any shareholder nod, or shares worth up to ₹791 crore with shareholder approval.
But following L&T’s open offer proposal, Mindtree cannot buy back any shares without a 75% shareholder approval, according to the Companies Act, 2013.
“Even if Mindtree promoters offer ₹1,000 apiece and get a majority shareholder approval to buy shares worth 25% of the company’s total capital, they will be able to buy back a maximum of 7.9 million shares, or 0.68% of Mindtree vis-à-vis the 31% shares L&T has proposed to buy in the open offer,” a person directly aware of the recent developments at Mindtree said on condition of anonymity.
Also, under Section 77 of the Companies Act, 2013, if any entity (in this case L&T) announces an open offer to acquire control in a company (in this case Mindtree), the company cannot conduct a share buyback, or alter the company’s capital structure in any manner unless it secures 75% shareholder approval.
“The company does not have enough money in its balance sheet to fund the buyback and, even if the promoters pledge their entire 13.32% holding, which is rare, they may be able to raise around ₹1,000 crore (which is 50% of the market value of their holding as per the standard loan-to-equity valuation practice),” a second person aware of the developments at Mindtree said on condition of anonymity. The person added that, therefore, it was unlikely that Mindtree would go ahead with its share buyback plan.
“If Mindtree really wants to counter L&T’s hostile takeover bid, the promoters will need to rope in a large financier, who will not only have to offer a higher share price to buy Siddhartha’s 20.32% stake, but also have to agree to not change the existing board and management control at Mindtree, unlike L&T,” added the first person cited earlier.
The Indian investment banking arm of JPMorgan Chase and Co. said in a report that there were synergies in a combination of L&T Infotech Ltd, a unit of L&T, and Mindtree, as the two business models are non-overlapping.
The L&T management has said that it will allow Mindtree to function as a completely independent listed entity in the near term, but at the same time alluded to a possible merger with L&T Infotech once combined revenues from the three entities (including L&T Technology Services) cross the $5 billion thresholds.
Source: Mint