L&T Takeover Mindtree- at What Value?
Larsen & Toubro (L&T) has announced its plan to acquire around 66.3 percent stake in a Midcap IT company, Mindtree Limited which has a market cap of around Rs. 15,600Cr.
L&T would require money/ full cash of approx. Rs. 10,700Cr to take over the planned stake in Mindtree.
Yes L&T is taking over Mindtree with Pyaar and Dil 🙂
How L&T is Funding this cash for taking over Mindtree?
L&T needs Rs. 10,7oo Cr for taking planned 66.3% stake.
- L&T has cash of around Rs.3635Cr as on Sept 2018 reports
- Also, other investments like Bonds, mutual funds etc around 9000Cr.
- The debt of l&T is just 0.4 times the equity which is very much comfortable.
- Hence L&T need not take any additional finance for this takeover of Mindtree.
Proposed Transaction Flow for L&T Mindtree Hostile Takeover
- L&T has entered into a share purchase agreement with one of the major shareholder of Mindtree, Mr. VG. Siddhartha and group companies.
- Mr.VG. Siddhartha’s entire stake in Mindtree is around 20.32%
- He has agreed to sell his entire stake at a price of Rs. 980 per share
- L&T will take an additional stake of 15.1% through Open Market route, by offering a maximum price of Rs. 980 per share
- L&T will also make an open offer to other shareholders of MindTree holding 31% stake at the same price of Rs. 980 per share
- This will take L&Ts Total stake close to 66.3% in Mindtree.
- As mentioned in the L&T press release this transaction is subject to Regulatory approvals like SEBI, Competition Commission of India(CCI) etc.
Who can Control L&T Mindtree takeover
- The promoters hold only 13.3% stake in Mindtree as on today.
Since this is very less and it gives a path for anyone to takeover Mindtree and Promotors may not be able to control the takeover process.
Next major Holding is from Mutual funds & other institutions!
Mutual funds & other institutions Hold massive 50.9% stake in Mindtree.
- Mr.VG. Siddhartha’s entire stake in Mindtree is around 20.32% this stake is already in L&Ts hand.
- Out of 50.9%, Nalanda Equity Fund holds 10.6% stake in Mindtree
- If L&T Could get the stake from Funds or institutions like Nalanda, It will be very easy for L&T to takeoverMindtree.
Time Line for L&T to take Over Mindtree
After obtaining the required approvals and clearances from Regulatory bodies, the transaction is estimated to be completed by the first quarter of Financial Year 2020.
Why L&T is taking over Mindtree-What are major factors?
L&T is already having a meaningful presence in the IT Sector, though It’s two separately listed subsidiary companies
- L&T Infotech
- L&T Technology Services
These two IT companies(L&T Infotech & L&T Tech services) have generated profits close to 22% of overall L&T’s Profit in the last Financial Year 2018.
As explained by L&T’s Management this Mindtree would be a Good addition to the L&T Group. L&T is expecting this will add more customers/business in consumer goods and retail, Travel verticals, where L&Ts presence is less at present.
L&T take over of Mindtree will enhance L&Ts Digital capabilities and extend their presence across the verticles and Cloud business too.
As per L&T, the acquisition will not add much value at Returns or Profits level in the short term and it remains a neutral position, for now, however, in the long run, it must produce reasonable value.
Impact for L&T Post Taking over!
If L&T takes over Mindtree.
- The Revenue from Mindtree will be around 5% of total L&Ts Revenue( as per Financial Year 2018 reference)- which is very small for Big company like L&T
- However, it will add a significant portion to L&Ts revenue from IT sector. Almost a 50% increase in revenues from the IT field.
- Funds wise L&T is not having any issues
- L&T will get proceeds of their stake sale in their Electrical & Automation group business around 11200Cr
- This EA Group funds will also happen in the Financial year 2020, which gives a comfortable position to L&T on Funds Part.
- Integration of Employees, Client base will be a bit challenging!
It will be interesting to see how L&T strategy works, in the long run, having high exposure in their separately listed companies. L&T holds more than 70% in their LTinfotech and LT tech services.
History of Mindtree
Mindtree’s started back in August 1999, when 10 professionals started this venture. Mindtree went into Public in 2007.
- Known for very high standards of corporate governance
- It is the 7th largest IT company in India, with more than 18000 employees spread across 18 countries globally.
- The company is known for its deep domain expertise, long-lasting customer engagements with a key industry focus and had 338 active clients as at FY2018.
- In the last 5 years, the company has grown its revenue at a CAGR of 18.3 %.
- During this period, the return on capital employed and return on equity have averaged 31.7% and 24.7% respectively.
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