De-rating will be seen by both the businesses today if Mindtree and L&T Infotech unite. There’ll be management instability, customer instability, attrition. The integration will go for a year or more because it is not a easy acquisition,” Sanjeev Hota, an analyst at brokerage company Sharekhan, said.
“Since it has pioneered the (acquisition) transfer, it would maintain L&T’s interest to consummate this buyout fast so that it can hold on to as many key customer connections and workers –both of which may see a flight when there is protracted uncertainty,” Girish Pai, head of research at Nirmal Bang explained.
On March 26, L&T declared it will create an open offer to get an additional 31% of Mindtree shares at Rs980 apiece, for crore. The organization on March 18, had bought a 20.32% stake from Mindtree from VG Siddhartha, owner of the country’s largest coffee shop chain, Café Coffee Day (CCD). Has plans to pick up some shares from the market.
However, a turnaround appears unlikely. The L&T management has signaled it will merge L&T Infotech and Mindtree together following the companies reach $5 billion.
Who’s ’s paying?
It has stated that Mindtree won’t be instantly merged with its two IT companies –L&T Technology and L&T Infotech. The rationale behind this decision is that it would help avoid integration issues between the three companies and also protect minority shareholders of every company, given the difference.
There are also concerns over plans to operate Mindtree in the future.
Eventually, L&T hopes to have a stake of over 66 percent in Mindtree to get crore.
As of December 2018, L&T had cash and cash equivalents of crore, according to Motilal Oswal. It creates free money of Rs1,500 crore annually.
“This implies any purchase synergies and value generation (such as L&T) will be delayed,” Quadros said. “Three listed IT companies reduce shareholder value accretion… L&T Infotech getting Mindtree could have been a better match. ”
The purchase goes against the L&T management’s earlier devotion to creating its balance sheet thinner by letting go of businesses. The bargain is “not substance for L&T in itself ”, brokerage firm Jefferies India said in a March 27 notice. It “does increase scrutiny on L&T’s capital allocation,equity analyst at Jefferies India, ” Lavina Quadros wrote.
The plan will be pushed until money is generated from the business, In the event the Mindtree acquisition goes through.
The organization had said it will buy back Rs9,000 crore worth of shares. However, the plan ran into trouble together with the market regulator, the securities and exchange board of India (SEBI), also was in limbo since.
As its IT arms don’t have enough funds in hand, the buyout is being funded by the construction and engineering major via its cash reserves.
The Mindtree management, compared to this Mumbai-based engineering important ’s offer until a couple of days back, took a conciliatory notice on March 26 by setting up a committee to check into the bid. This is expected to pave the way for L&T to smoothly buyout an asset that would add great value as it seems to diversify into non-core places.
After weeks of high-voltage drama on a hostile takeover bid, Larsen & Toubro (L&T) can finally be near successfully obtaining a vast majority stake in mid sized IT company Mindtree.
The business was on course to meet its goal by divesting its assets, of delivering the 18% return on equity to investors by the end of March 2021, according to a research analyst at Motilal Oswal, Amit Shah. That might not happen If there is an increase in the cost of acquiring Mindtree.
Additionally, the acquisition of Mindtree may take a chunk of their cash reserves L&T has accumulated, which is contrary to the earlier target of making the company thinner of the management, Quadros added.
But financing the deal would weigh heavy s balance sheet.