More money from L&T top on Mindtree's mind

Industry insiders say Mindtree would seek Rs 50-100 more over the price per share quoted by L&T

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Having closed the equity buyback option, Krishnakumar Natarajan, executive chairman of Mindtree, told DNA Money the Board and management had turned their attention to consider options that were in the interest of stakeholders.

These would include negotiating a better valuation for the open offer made by engineering and construction conglomerate L&T, Board seats for current management and extracting attractive terms for employees.

"The Board and management will consider various options keeping in mind the interest of all the stakeholders. Until the time that any decision will be taken, it is inappropriate to make any predictions or comments," replied Natarajan to a query on whether it will continue to oppose the L&T's hostile takeover bid.

Kris Lakshmikanth, CEO and managing director, The Head Hunters India Pvt Ltd, said independent directors, who have been entrusted the task of evaluating the unsolicited L&T offer, would negotiate for a bid price that was Rs 50-100 higher than the quoted price.

L&T has made an open offer to acquire a 31% stake in Mindtree at Rs 980 per share for Rs 5,030 crore.

"The Mindtree Board has constituted a committee of independent directors to look into L&T's bid. The independent directors will have to work in the interest of shareholders or they can be sued by shareholders. What they are negotiating is an additional Rs 50-100 per share over the quoted price plus some Board seats for promoters. They may also ask for golden handcuffs for the current management so that when the new management (of L&T) takes over, their jobs are not jeopardised for at least a year. They might succeed in getting their way because L&T also does not want to keep fighting," he said.

A M Naik, chairman of L&T, recently made it known that his company would retain Natarajan as executive chairman of Mindtree post acquiring majority stake in the mid-sized information technology (IT) company.

Lakhsmikanth is expecting at least three Mindtree directors to be retained on the Board after the takeover.

On how much operational and management control Mindtree would be able to hold on to after L&T scales up its shareholding in the company, Natarajan said the "differentiated corporate culture" of Mindtree was crucial for its success.

"The long-term success of Mindtree has been attained due to an early commitment to digital, a set of specialised intellection property, combined with a differentiated corporate culture. This has resulted in best in class operational performance. Mindtree has enjoyed an 18X appreciation in market cap in the last 10 years. Let me not cast aspersions on any other company, but it is important to state that one of the core elements of Mindtree's recipe for success is our spotless record on corporate governance. We strongly believe in integrity and transparency as key governance pillars and many highly respected organisations have acknowledged our commitment in this critical area," he said while indirectly pitching for a continued hold of the current management in the operation of the company that was launched in 1999 by 10 techies.

Natarajan declined to comment on whether promoters would offload their stakes for the open offer. "The question is speculative and premature."

In a surprise move, L&T recently made unsolicited bid to acquire Mindtree and entered into a deal to buy Cafe Coffee Day founder V G Siddhartha's 20.32% stake for Rs 3,269 crore on March 18. It is now looking to take its shareholding in the company to 67%.

The founders of the mid-sized company, who presently own 13.3% stake, initially opposed the L&T overture but now seem to be settling into the new reality and were considering how to optimise gains for shareholders. Institutional investors hold around 50% in the company.

D D Mishra, research director, Gartner, said mergers and acquisitions were not uncommon in the IT sector and help in the evolution of the ecosystem. He said leveraging the situation to their benefit was the best option for everyone.

"The best option for everyone is to leverage the situation, anticipate the change which is going to come and then make sure they are able to leverage it to their benefit," he said.

Mishra sees high growth potential for Mindtree if two companies successfully create a strong ecosystem together. "Excellent growth rate is possible at this point in time. If they are able to stitch a deal together, culturally integrate the organisations and build a strong ecosystem then very high growth target can be achieved."

Mindtree was the first mover in the digital services space in the domestic market. Today, digital is growing at the fastest rate. This has given the mid-sized IT company an edge over other players. The combined revenues of Mindtree (Rs 6,959 crore) and L&T's IT subsidiary L&T Infotech (Rs 5,182 crore) would be around Rs 12,000 crore.

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