L&T Infotech (LTI) is said to be lining up to acquire VG Siddhartha’s stake in MindtreeNSE 1.91 %.
The Larsen & Toubro unit is closing in on a potential deal with serial entrepreneur and Café Coffee Day founder Siddhartha, the single largest shareholder in the Bengaluru-based, mid-tier IT Company, said three people with knowledge of the matter.
Siddhartha and AM Naik, nonexecutive chairman of LTI, are believed to have met last week. That was followed by the L&T team meeting the Mindtree management last Friday amid talks. However, one of the persons cited above said the Mindtree management was noncommittal on any deal with L&T.
L&T, however, denied that any meeting took place.
The four remaining founders— Subroto Bagchi, NS Parthasarathy, Krishnakumar Natarajan and Rostow Ravanan-—have been holding out against a sale and are against any deal with a strategic acquirer such as LTI or private equity suitors like KKR and Baring Private Equity Asia, which have also been on the prowl for the asset, according to people with knowledge of the matter.
Siddhartha is determined to sell his stake by month-end and has sought binding offers from all suitors this coming week, said people close to him.
A passive investor, Siddhartha backed the founders led by Ashok Soota in 1999. Soota exited Mindtree in 2011. Siddhartha and his group companies own about 21% of the company. He’s been looking to monetize his investments since last November to address his own liquidity issues.
The Mindtree founders said they have no plans to exit.
“We have not been approached nor communicated about this. It is Mr Siddhartha’s decision on how he wants to sell his shares,” Ravanan said. “As far as the founders are concerned, we are committed to Mindtree and its strategic goals. We are not taking part in any of this.”
LTI CEO Sanjay Jalona said the company would not comment on speculation.
“We are always looking for acquisition opportunities globally,” Jalona told Sources in a call after the company’s third-quarter results on Friday. “Why just Mindtree, if we have deep enough pockets we would even look at Accenture.”
Responding to a detailed questionnaire from sources, an L&T spokesperson said, “As part of business strategy, the company does explore various opportunities towards growth. Having said that, we categorically deny any meeting or agreement as mentioned having taken place. Consequently, the question of any subsequent steps just does not arise.”
Siddhartha didn’t respond to emails and text messages.
Ravanan, who’s the CEO and holds less than 1% stake, is the last of the founding team to lead the company and has been among the most resistant to any deal, said the people cited above. The founders have been nudging Siddhartha to exit through the stock markets, which would be impractical for the seller.
Both PE funds mentioned above are believed to have sought management support or a buy-in from at least two of the founders.
KKR India CEO Sanjay Nayar and Richard Barton, an external spokesperson for Baring Asia, declined to comment.
LTI is also not keen on a hostile trade and has been in discussions with other public shareholders to galvanize support and pick up a bigger stake. According to sources directly involved, Naik offered Rs 1,150-1,200 per share for the company as early as December but wanted Siddhartha to win management support.
The share closed at Rs 886.90 on Friday for a market value of Rs 14,562.50 crore. Analysts expect final bids in the range of Rs 850-1,000 per share if a deal were to take place. The stock has already appreciated 8% since the beginning of the month in anticipation of a trade.
Open Offer Possibility
The people cited above said another 3-4% stake may be available once Siddhartha exits, allowing a buyer to come close to the 26% threshold that will trigger an open offer for another 26% at least under the rules. In any case all bidders would seek to launch an open offer to consolidate their stake to as close to 51% as possible.
Without management support it may be difficult for the PE funds to make an aggressive offer.
“They would not want to buy a large minority position without any executive power or rights since they won’t be able to drive growth or take on leverage without management consent,” said one source.
The PE funds may be in play if the founders decide to exit, said some of those cited above. Having quit his executive role earlier this year, Siddhartha’s stake does not come with a board seat or other affirmative rights that PE investors typically seek out.
A banker involved in the process said Ravanan is in his late 40s and wants to grow the company to a $1 billion dollar plus company but pointed out that the founders only have a 13% stake.
“Neither can they hold Siddhartha, who has been a benign, friendly investor from day 1, hostage. In the process, even the retail shareholders are losing out by at least Rs 200-300 per share,” the banker said.
While Mindtree has lost some of its sheen, LTI has focused on improving deal wins since Sanjay Jalona took over as CEO in 2015, taking revenue past $1 billion.
The three acquisitions he has made so far have been small. The ability to win smaller, higher-priced digital deals has helped improve margins to 20.6% in the third quarter but that’s still lower than 24% for market leaders such as Tata Consultancy Services (TCS) and Infosys.
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