Larson and Toubro has bought a nearly 21% stake in Mindtree and has made an open offer to get a majority holding. Mindtree’s founders have termed this a hostile takeover approach and have vowed to fight it for as long as it takes.
New Delhi: The promoter and Chief Executive Officer of Mindtree, Rostow Ravanan said the board of the company might consider on 'buyback' or 'open offer' options within the framework of the law.
In case of a buyback, it is the company that offers to its shareholders an option to buy shares from the open market. Post buyback the outstanding number of shares of a company decreases.
Promoters also use buybacks as a tool to cement their stake in the company. If they do not sell their shares, their shareholding as a percentage of outstanding shares goes up.
An acquiring company generally offers open offers to shareholders of a company that is being acquired. This allows the latter to get the necessary shareholding for completing its acquisition.
Café Coffee Day said that their debt would be lowered down with the sale proceeds. This is the company's business strategy to give more time to its coffee business. As on March 31, 2018, the net debt of CCD was Rs 3,323.8 crores.
According to VG Siddhartha, owner of Coffee Day, this business restructuring will allow for sharpening their portfolio focus and devoting more time towards the strategy for their coffee business. They remain committed to achieving overall growth of the business by focusing on execution and increasing shareholder value.
In the first quarter of the financial year 2020 the transaction is likely to close, subject to customary closing conditions, including regulatory approvals being received.
L&T has bought a nearly 21% stake in Mindtree and has made an open offer to get a majority holding. Mindtree’s founders have termed this a hostile takeover approach and have vowed to fight it for as long as it takes.
Mindtree has said, a hostile takeover in the IT services space, where clients have a long-term relationship with senior executives, was futile and would destroy value. They said, now that it has initiated the move, it would be in L&T’s interest to consummate this buyout quickly so that it can hold on to crucial customer and employees.
The apprehension of the management is that given a hostile environment to the deal, it is possible that Mindtree’s business might suffer and they were doing their best to ensure their business doesn’t miss a beat.
Even though L&T has said it plans to keep the company separate, Mindtree’s founders said just being part of a group would lead to a change. L&T has explained to analysts how MindTree can fit by giving the varied core expertise of its unit, L&T Infotech, and Mindtree.
L&T said while LTI does not have exposure to the travel and hospitality sector which Mindtree has, Mindtree was not into energy and utility sectors. L&T CEO, SN Subrahmanyan said that they would reassure the management and employees that they are coming as an investor and the idea is to keep it (Mindtree) separate.
Siddhartha has earned a profit of close to Rs 2,858 crores from the sale of all his stake in Mindtree to L&T. Siddhartha who is the founder of CCD (Cafe Coffee Day) had started investing in Mindtree over a decade ago and gradually accumulated 20.41 per cent stake in Mindtree until 2019. On March 18, 2019, Larsen and Toubro (L&T) bought his entire stake for a price not exceeding Rs 3,269 crores.
Apart from the profits on the sale of his 20.41% stake to L&T which amounts to Rs 2,858.74 crores, the CCD founder has also earned close to Rs 180 crores just through dividends from Mindtree in the last decade.
For over eight years, Siddhartha bought his stake in Mindtree at a price close to Rs 435.79 crores. He sold 2.5 lakh shares at the rate of Rs 122.33 in 2012 amounting to Rs 25.52 crore, followed by a minor sale of 250 shares in 2018 at Rs 864 per share which amounted to Rs 2.16 lakh. After these deductions, the effective cost of investment that Siddhartha incurred while buying all his stake in Mindtree comes to around Rs 410.25 crores.
As per the latest shareholding pattern of Mindtree, Siddhartha and CCD entities held 20.41 per cent or 3.35 crore shares of Mindtree. As per a CCD notification on BSE (Bombay Stock Exchange), the sale price for the entire stake will not exceed Rs 3,269 crores. This implies Rs 975 was being offered per share to the CCD founder. Siddhartha bought shares in Mindtree for anywhere between Rs 87-529 over a period of eight years and sold it at a price close to Rs 975.
VG Siddhartha's investments in Mindtree:
The investment of Coffee Day Enterprises was in 2011. Coffee Day Resort held 6.95 per cent stake or 28 lakh shares in Mindtree. These shares were bought at a price close to Rs 87 per share. The total cost of purchasing these shares was close to Rs 24.36 crores. This initial investment by the CCD founder returned a massive return on investment (ROI) of 1,020 per cent.
In March 2012, Siddhartha increased his stake to 11.26 per cent (or 45.65 lakh shares) in Mindtree which were acquired at Rs 122.33. In June 2012, he increased his stake further by 3.27 per cent (or 13.47 lakh) shares and owned 14.53 per cent in Mindtree.
In 2014, Mindtree issued bonus shares in the ratio of 1:1. After the issuance of bonus shares, Siddhartha sold a minor part of his holding and earned close to Rs 25.5 crores.
In 2016, MindTree reissued bonus shares in the ratio of 1:1. This time the entire stake of Siddhartha remained intact, and no buying or selling occurred. In 2017, he increased his stake by 0.23 per cent (4.41 lakh shares) in Mindtree. These additional shares were acquired at a price close to Rs 529 per share. After this substantial acquisition, his stake stood at 19.94 per cent.
In 2018, as per the latest available quarterly shareholding pattern of Mindtree, Siddhartha held 20.41 per cent stake, of which 3.33 per cent (54.69 lakh shares) was directly held in his name, 10.63 per cent (1.74 crore shares) was in the name of Coffee Day Enterprises, and Coffee Day Trading Limited held the remaining 6.45 per cent (1.05 crore shares).
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Last Updated Mar 23, 2019, 11:51 AM IST