Mindtree mulls share buyback programme to fend off L&T's hostile takeover bid

Bengaluru-based IT services company Mindtree is planning a share buyback programme apparently to thwart a likely hostile takeover threat from technology major Larsen & Toubro (L&T). Mindtree said the company's board may give assent to the proposal at a meeting on March 20, a media report said on Saturday.

L&T's board cleared a proposal to buy the 21 per cent stake that Cafe Coffee Day founder VG Siddhartha controlled in the firm with a current market cap of nearly Rs 10,500 crore, the report in Business Standard said. Though Mindtree did not give details of the buyback, sources expected the board to approve a Rs 1,000-crore buyback programme.

The Mindtree share shed 2.70 on the National Stock Exchange on Friday to close at 947.90 on a day when the sectoral Nifty IT index gained 286 points or 1.88 per cent to close at 15,546, buoyed by Infosys, Tata Consultancy Services, and Wipro.

Industry observers consider a share buyback by a company when a large shareholder was planning to offload stake was unprecedented and could create hurdles for any rival technology firm to come on board, the report said. The company spent Rs 270 crore on a share buyback programme in 2017. "Looks like there's a big disconnect between the single-largest shareholder and the management. No company announces a buyback when a large shareholder is trying to sell his stake," V Balakrishnan, former Infosys board member and chairman of Exfinity Venture Partners, is quoted in the report as having said. "As the price goes up, the transaction will be revisited by the interested party. It will now be costlier for any entity to take control of the company."

Siddhartha is in an advanced stage of discussions with several entities, including private equity players and L&T, to offload his stake. There were reports that investment firm KKR and Barings Equities Asia Ltd were interested in the stake controlled by Siddhartha. Apart from his own investment, Coffee Day Enterprises Ltd that owns CCD and some other companies that Siddhartha controls have reportedly stake in Mindtree. But the Mindtree founders' reluctance to shed their 13.32 per cent stake in the company complicates the situation.

Reports indicate that Siddhartha has pledged his shares for raising funds of nearly Rs 3,000 crore, which amounts to almost the entire value of his investment in the company at the current valuation, for his other businesses. In January, AM Naik, executive chairman of the L&T group, had confirmed that the engineering major was planning to acquire a stake in Mindtree.

"This buyback might be an attempt to get shareholders on the management's side. It will be useful in the case of an open offer, where shareholders have to choose between the current management and a new one," Pareekh Jain of Pareekh Consulting was quoted in the report as saying. "From whichever angle you see, it seems like a classic boardroom battle is about to begin."

Another source close to the development said, "It is prudent policy to reward shareholders who have put faith in the current management for a long time."