L&T to launch a hostile take-over over Mindtree

/ March 22, 2019/ LTI, LTTS, M&A (large, with revenues above $50m), Mindtree

If you follow what’s going on in India, you are probably well aware that the manufacturing conglomerate Larsen & Toubro (L&T) has acquired 20.3% of Mindtree, from a passive promoter (the Indian term for key shareholders, usually founders). L&T is looking to grow its stake by an additional 31%, and therefore become a majority shareholder. L&T is offering INR 980 per share (about USD 2.32bn for 100% of the shares of Mindtree).

Mindtree’s founders, who still manage the company, are opposing the deal. The press reports that Mindtree’s founders explore several options, including a white knight in the form of PE or a significant share buy-back but, in the end, decided to defend their company, through calling on the government and public opinion.

In all likelihood, this is a done deal and L&T will acquire Mindtree. L&T has committed to keeping Mindtree independent, to minimize attrition.  Larsen & Toubro has one IT service company captive, LTI (formerly L&T Infotech) and one ER&D service subsidiary, LTTS. The two units have their own space well-defined although they increasingly overlap in Industrial IoT and digital. Mindtree is largely an IT service firm, with a small ER&D unit (with approximately USD 90m in revenues).

The Indian press is speculating about three scenarios: the absorption by LTI of Mindtree; the absorption by LTI and then the transfer of Mindtree’s ER&D business to LTTS; and the merger of the three units to create a USD 2.Xbn firm.

For now, this is all speculation. And, no doubt, L&T will work on stabilizing Mindtree for several years, before a next step. This transaction only impacts the Indian ER&D service industry on the side. One thing is however clear, despite their solid financial performance, the tier-two Indian vendors now want to gain scale. They need to: TCS is on its way to becoming a USD 20bn and being larger than DXC, the company that resulted from the acquisition by CSC of HPE/EDS.




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