After a long time, India got to see something that is close to a hostile takeover. After VG Siddhartha of Café Coffee Day, the largest shareholder in Mindtree, approached L&T Infotech to buy his stake in Mindtree, the color of the deal changed drastically. L&T Info was not only interested in taking VG Siddhartha’s stake but also in taking over full control of Mindtree. Not surprisingly, the founding fathers of Mindtree were hardly amused by the idea of a Mumbai based conglomerate taking over a startup like Mindtree. But why is L&T Infotech so interested?
Willing to pay top-dollars
To begin with, L&T Infotech is willing to pay close to the high price provided they get a controlling stake. Buy why does L&T want Mindtree? There are quite a few reasons. Firstly, L&T Info has been too much of a BFSI focused company with clients like Microsoft, Citibank and Barclays accounting for a big chunk of their business. L&T Info is still a staid BFSI driven company, whereas Mindtree has made rapid strides in the field of digital client solutions. After all, that is the growth area for IT companies. If L&T Infotech needs to get into the big IT league in India, then an inorganic strategy would work a lot better. The best example is that of Tech Mahindra, which actually catapulted itself in the top league with the acquisition of Satyam. And therein lies another very interesting story.
Satyam and Reliance
As L&T Infotech prepares to make a hostile bid for Mindtree, there is a piece of history against it. Back in early 2009, L&T had made its strategic bid by increasing its stake in Satyam to 12%. Of course, it was called a strategic investment back then but it imploded when Satyam went bust. They were lucky to get an exit through Tech Mahindra but surely their experience in software buys has been less than flattering. Secondly, back in 1989, Dhirubhai Ambani had made a hostile bid to take over L&T. That was the time L&T management had fought hard and used the influence of institutional investors to resist the deal. Much later, Birlas had tried the same, before cutting a win-win deal for both parties. The same L&T trying to make a hostile bid for a professionally managed company like Mindtree looks insincere and daft.
Government must get involved
India has not had a history of hostile takeovers and that must continue. Unlike L&T, Mindtree does not have large institutional shareholdings. Hence the onus will be on the government to intervene and sort things out. There should be a middle path where L&T is allowed to hold a passive stake and Mindtree retains its independence. That would also be conducive to the start-up culture that the NDA has spoken about. It is time to sort things amicably! ©