Project On

Mindtree Hostile Takeover by L&T

Prepared By:-
Bhavin Bagade (20195006)

Guided By:-
Prof.Pramod Paliwal
 Contents
......................................................................................................... 1
1.Introduction to Mindtree ........................................................................................................................... 3
2.Business Model .......................................................................................................................................... 3
3. What happened with Mindtree? .............................................................................................................. 4
3.1 India’s First Hostile Takeover .............................................................................................................. 4
3.2 Why we call it Hostile takeover?......................................................................................................... 4
3.3. How did L&T take over Mindtree? ..................................................................................................... 4
3.4 How the takeover has panned out till now? ....................................................................................... 5
4. How Mindtree acquisition will benefit L&T .............................................................................................. 5
5. Post Acquisition analysis of Mindtree ....................................................................................................... 8
6 Financials of Mindtree & L&T .................................................................................................................. 10
7. Conclusion ............................................................................................................................................... 10
8. References:- ............................................................................................................................................ 11
1.Introduction to Mindtree

Mindtree Limited is an Indian multinational information technology and outsourcing company

Founded: 18 August 1999

CEO: Debashis Chatterjee (2 Aug 2019–)

Parent organization: Larsen & Toubro (61.08%)

Revenue: 7,839.9 crores INR (US$1.1 billion, 2020)

Founders: Subroto Bagchi, Ashok Soota, Krishnakumar Natarajan, Anjan Lahiri, Rostow Ravanan

2.Business Model
3. What happened with Mindtree?

3.1 India’s First Hostile Takeover

In what is touted as the first hostile takeover of a company in the country, Indian conglomerate
Larson & Toubro has successfully completed its takeover of IT company Mindtree. As per L&T,
initially, Cafe Coffee Day founder VG Siddhartha who was facing pressures of liquidity
approached them offering to sell his stake in the company in March 2019. Interestingly, Siddhartha
was the single-largest non-promotor shareholder having 20.32 per cent stake in Mindtree. L&T
offered him Rs 980 per share, which approximately amounted to Rs 3,269 crores. This offer
was vehemently opposed by the management of Mindtree which set stage for a hostile acquisition.

In March 2019, Chairman of L&T AM Naik in his address to the media had explained how the
acquisition of Mindtree was a value addition. The Indian conglomerate already has a listed IT
company - L&T Infotech - which focuses on BFSI verticle whereas, Mindtree largely focuses on
clients from hospitality and retail sector. So, a takeover would mean an expansion of L&T's
information technology business.

3.2 Why we call it Hostile takeover?

A hostile takeover is said to be one where a company acquires the target company by going to the
target company’s shareholders or by fighting to replace management to get the acquisition
approved. And when the management of the target company doesn't want the deal to take place, it
is called a hostile takeover.

In Mindtree's case, promoters Subroto Bagchi, NS Parthasarathy, Rostow Ravanan, and

3.3. How did L&T take over Mindtree?

In a normal scenario, when a company tries to acquire another, it can offer to gain control if it
owns 25 per cent stake of the company it is trying to acquire. However, L&T did not own 25 per
cent ownership of the company. So, L&T used a loophole in the Securities and Exchange Board
of India's (SEBI’s) Takeover Code.
The Indian conglomerate used Section 3, Clause 1 along with Section 4 of the securities regulator’s
takeover code, which entitles L&T to make an open offer to acquire public shareholding in the
company.

As per this section, those with a 25 per cent stake or more cannot take over a company unless an
open offer has been made to acquire shares of a company with a public announcement. However,
the takeover code also says whether or not one holds shares or voting rights in the company, one
is not eligible to take control unless a public announcement of an offer to acquire those shares is
made. This allows L&T to make an open offer, without owning 25 per cent shares in the IT major.

3.4 How the takeover has panned out till now?

The deal started when L&T bought 20.32 per cent shares in Mindtree from Cafe Coffee Day
founder VG Siddhartha for almost Rs 3,269 crores in March 2019. Following this, it made an on-
market purchase of around 15 per cent capital shares.

Last month, L&T made an open offer for an additional 31 per cent stakes which started on June
17 and concluded on June 28, 2019. On July 2, 2019, Mindtree said in its regulatory filing, "We
wish to inform that Larsen & Toubro Limited has acquired equity shares to an extent 60.06 per
cent of the total shareholding of the company and has acquired control and is categorised as
promoter pursuant to Sebi... Regulations, 2018."

In another exchange filing on 6 July 2019, Mindtree said its top Executive Chairman Krishnakumar
Natarajan, Executive Vice-Chairman and Chief Operating Officer (COO) N S Parthasarathy, and
Managing Director and Chief Executive Officer (CEO) Rostow Ravanan have stepped down.

While Mindtree is still due to announce its new leadership, "Mindtree will be run as a separate
entity, distinct from L&T Infotech (LTI) and L&T Technology Services (LTTS). The entities
would run at an arm's length. It is inappropriate to speculate about the future structure now," L&T
CEO SN Subrahmanyan told PTI.

4. How Mindtree acquisition will benefit L&T

IT WAS IN 1999, when India was going through the dotcom boom, that Ashok Soota quit as vice
chairman of Wipro’s information technology services business and started a software services
firm, Mindtree, along with eight friends. Coffee baron V.G. Siddhartha was among the first
investors in the company. In the past two decades, Mindtree carved out a niche for itself in the IT
outsourcing business. Siddhartha remained invested in the company all along, but earlier this year
he decided to sell his 20.32 per cent stake to Larsen and Toubro, in an attempt to cut down his
debt.

Mindtree’s promoters were not amused, and were vocal against L&T’s takeover attempts. They
did not see any strategic advantage in the transaction and considered it a “grave threat” to the
organisation. But on March 19, L&T entered into a definitive agreement with Siddhartha and
related entities of Coffee Day Trading and Coffee Day Enterprises to acquire the stake. It also
announced an open offer to minority shareholders to purchase an additional 31 per cent stake at
0980 a share, and said it would also look to mop up another 15 per cent through open market
transactions.

As of June 30, the promoters held 13.30 per cent stake in Mindtree, which includes 3.71 per cent
held by executive chairman Krishnakumar Natarajan, 3.10 per cent by former executive chairman
Subroto Bagchi, 1.42 per cent by executive vice-chairman Parthasarathy N.S. and 0.71 per cent by
managing director and CEO Rostow Ravanan. On June 27, L&T gained a controlling stake in
Mindtree, with a share of 60 per cent. On July 5, Natarajan, Parthasarathy and Ravanan resigned.

S.N. Subrahmanyan, chief executive and managing director of L&T, insisted that it was Siddhartha
who approached the company to sell his stake. India’s largest engineering and construction
company, L&T already has a strong IT services and technology business—L&T Infotech (LTI),
which offers software services, and L&T Technology Services, which offers engineering and R&D
services. The combined revenues of the two companies were in excess of Rs14,500 crore last year.
Mindtree reported a revenue of Rs7,022 crore and a net profit of Rs754 crore in 2018-19.

So, why was L&T keen on taking over a mid-size IT firm?

The group’s core business—large infrastructure projects such as airports, bridges and power
plants—generates profit after tax (PAT) of around 7 per cent, according to Subrahmanyan. It wants
to derive higher profits from the services business, which is also less risky. “Over the last few
years, we have been giving more fillip and push to services business. These businesses are more
profitable and we are able to see PAT of 15-16 per cent. From an overall portfolio point of view,
it makes sense to grow the business faster,” said Subrahmanyan.

And, Mindtree was a perfect fit. It was one of the earlier companies to sense and seize the
opportunities in new digital technologies like artificial intelligence, automation and machine
learning. In the January-March 2019 quarter, digital technologies accounted for 49 per cent of the
company’s revenue. In the case of Tata Consultancy Services, India’s largest IT company, digital
contributed just 32.2 per cent of the revenues in the same quarter.

L&T itself has been a big user of new technology tools in engineering, construction and other
businesses. Riding on these strengths, the company has launched a new technology platform called
L&T-Nxt, which targets building a business through the use of new-age technologies. “We believe
there is a huge opportunity ahead with an increasing number of companies moving towards
Industry 4.0 (fourth industrial revolution) and adopting smart products, systems and processes to
unlock incremental value,” said L&T chairman A.M. Naik. “While it is too early to talk about
financials, L&T-Nxt is well positioned to capture a significant market share and become one of
the key drivers for L&T’s growth in the long term.”

There are other synergies across services verticals. For instance, L&T Infotech has a strong
presence in banking, financial services and insurance verticals, which contributed 47 per cent of
its revenue and is followed by manufacturing (15.9 per cent). On the other hand, at Mindtree, it is
hi-tech and media (39.6 per cent), and retail and consumer packaged goods that were the strong
contributors. “They operate in vastly different areas, with a minimum client overlap,” said
Subrahmanyan.
Analysts say the acquisition will help L&T add several large clients to its IT services portfolio.
“Over the next 1-2 years, the acquisition of Mindtree would add significant scale, plug the gaps in
LTI’s portfolio and add new large clients (Hermes, The Carlyle Group and Microsoft) and enhance
the digital capabilities and presence in infrastructure management space and cloud within the L&T
group,” said a report by broking firm Sharekhan.

For now, though, L&T plans to run Mindtree as a separate entity, said Subrahmanyan. Analysts
wonder if it would remain so in the long term. “Mindtree and LTI businesses are highly
complementary,” said Kawaljeet Saluja, analyst at Kotak Institutional Equities. “Mindtree has a
broad range of offerings, is strong in digital, particularly in the experience layer and cloud services,
and excels in handling the discretionary spending of clients. LTI’s strengths are geared towards
core transformation, enterprise solutions and strength in multiple aspects of digital including cloud,
analytics, internet of things, cognitive and mobility.”

Finding new leaders and a plan of action to retain existing managers at Mindtree will be a critical
focus area for the L&T management. There is speculation that attrition at Mindtree will spike after
the promoters’ exit. Addressing this, along with integrating Mindtree’s existing workforce and
convincing key clients to stay will be crucial for L&T.

5. Post Acquisition analysis of Mindtree

Acquisitions across the world, especially in technology-based companies, are being evaluated on
parameters such as synergies, cost reductions, expanding customer base in existing and new
markets, incorporation and introduction of new technologies, innovation, and the like. Based on
these criteria, investment bankers justify their valuation numbers.

In spite of the due diligence, often many acquisitions fail. The primary reason cited for such
failures is the neglect of human resource issues and lack of post-acquisition integration
activities. L&T now holds around 60 per cent stake in Mindtree. Owing to the exit of its founders
and key leaders, investors obviously are concerned about the future growth of the company.

Characteristics of tech firms: Tech firms are vastly different. They differ from manufacturing or
other service firms in terms of their work culture and values. For instance, Mindtree differentiated
itself from other mid-tier players by using its culture as a soft differentiator.
In an interview, Mindtree’s co-founder, N Krishnakumar, said: “What we sell is a promise of
building a relationship… every firm has critical skills, the customer wants to know will those skills
match my need and my organisation’s. Hence, our culture and values are key differentiators”.

What is post-acquisition integration?: This means involving people from both organisations who
are in core business activities such as planning, decision-making, selling, etc. Involving people
from both sides sends positive signals about the management’s commitment to learn and co-create
value which is greater than what either parties could have created individually.

Engaging employees is the most important element of post-acquisition integration and if it is not
handled carefully, the impact could be seen in the form of key people leaving the organisation.

Instilling confidence: Mindtree employs around 20,000 people and it refers to them as ‘Mindtree
Minds'. The most natural question that comes to an employee following the acquisition is: ‘What
will happen to me?’ Creating confidence in the minds of the employees is crucial. And, in
attempting this, communication is key.

For employees of the acquired company, there is a threat to their career and livelihood whereas
the for those in the acquiring company, it is an opportunity to learn and grow. Apart from
employees, clients of the $1 billion software services exporter need to be convinced. Mindtree’s
clients across the globe expect assurance and a sense of continuity from the new management.

In a recent interview, L&T head Subrahmanyan said: “AM Naik, Mindtree’s non-executive
chairman, has written to each and every client of Mindtree, and assured them of full cooperation
and the benefits of the services. And, we have got replies from some of the clients.” This is a
befitting example of a well-thought-out communication. As far as the shareholders are concerned,
L&T currently does not intend to increase shareholding to 66 per cent as originally mentioned in
the open offer. The new management has assured the shareholders that they are going to
concentrate on growth and can reap the benefits of L&T's global connections and networks.

Thus, when it comes to post integration, the major challenge for the new management is creating
confidence in the minds of three parties — employees, clients, and shareholders. It is evident that
L&T recognised these aspects and, accordingly, chalked out its activities.
6 Financials of Mindtree & L&T

As you can see in Chart above Mindtree after hostile takeover share price collapsed but with the
L&T expertise in market and also having good leadership skills hostile takeover of Mindtree has
been successful.

7. Conclusion

Mindtree is proud to now be part of Larsen & Toubro - an over $21 billion engineering, technology
& construction giant. With the support of L&T as its parent company, Mindtree is in an even
stronger position to continue its mission of engineering meaningful technology solutions for
businesses and society.

Larsen & Toubro Mindtree

Leveraging the best of both cultures

Mindtree originated with a set of professional founders who had nothing other than their skills and
a shared sense of purpose to create something special. This shared mission, passion and spirit of
ownership has led to a unique organizational culture that has delivered exceptional results for
clients and shareholders.

Larsen & Toubro is one of the largest and most respected companies in India's private sector, well
known for its culture of empowerment and professionalism. With over 80 years of a strong
customer focused approach and a continuous quest for world-class quality, L&T has unmatched
capabilities across technology, engineering, construction and manufacturing, and maintains a
leadership in all its major lines of business.

L&T has always worked towards building trust with shareholders, employees, customers, suppliers
and other stakeholders based on the principles of stellar corporate governance, strong financials,
social consciousness and sustainable operations.

8. References:-

 https://www.theweek.in/theweek/business/2019/07/20/how-mindtree-acquisition-will-benefit-
lt.html#:~:text=Siddhartha%20remained%20invested%20in%20the,to%20cut%20down%20his%
20debt.&text=On%20June%2027%2C%20L%26T%20gained,share%20of%2060%20per%20cent.
 https://www.screener.in/company/MINDTREE/consolidated/#chart
 https://en.wikipedia.org/wiki/Mindtree
 https://www.mindtree.com/about/lt-and-mindtree-the-way-forward
 https://www.thehindubusinessline.com/opinion/post-merger-
blues/article29224817.ece#:~:text=The%20primary%20reason%20cited%20for,future%20growt
h%20of%20the%20company.
 https://www.timesnownews.com/business-economy/companies/article/larsen-toubros-hostile-
takeover-of-mindtree-explained/451060