“Since it has initiated the (acquisition) move, it would be in L&T’s attention to consummate this buyout quickly so that it may continue to as many key customer relationships and workers –both of which could see a flight when there is prolonged uncertainty,” Girish Pai, head of research at Nirmal Bang said.

The two businesses will see de-rating today when Mindtree and L&T Infotech unite. There’ll be management instability, client instability, attrition.
On March 26, L&T announced it will make an open offer to acquire an additional 31% of Mindtree stocks at Rs980 apiece, for Rs3,050 crore. The organization on March 18, had bought a 20.32% stake in Mindtree from VG Siddhartha, owner of the nation’s largest coffee shop chain, Café Coffee Day (CCD). L&T also has plans to pick up some additional shares from the marketplace.
Eventually, L&T hopes to have a controlling stake of over 66 percent in Mindtree to get Rs10,700 crore.

The business was on course to satisfy its target by divesting its non-core assets, of delivering an 18% return on equity to investors by the end of March 2021, based on Amit Shah, a research analyst at Motilal Oswal. If there’s a rise in the cost of acquiring Mindtree, that might not occur.
But a quick turnaround seems unlikely now. The L&T management has indicated it and L&T Infotech will unite Mindtree just after the businesses reach $5 billion in revenue each, and it is a couple of years away.

Who’s ’s paying?

But funding the deal would weigh heavy on L&T’s balance sheet.

There are also concerns over how L&T intends to operate Mindtree later on.

The construction and technology major is financing the buyout as its IT arms do not have capital in hand.

The strategy will be pushed until cash is generated from the business In the event the Mindtree purchase goes through.
The acquisition goes contrary to the L&T direction ’s earlier devotion to making its balance sheet thinner by letting go of companies. The bargain is “not substance in for L&T, brokerage firm Jefferies India stated in a March 27 notice. It “does raise scrutiny on the capital allocation of L&T,equity analyst at Jefferies India, ” Lavina Quadros wrote.
The Mindtree management, compared to this Mumbai-based engineering important ’s offer till a few days ago, took a conciliatory notice on March 26 by preparing a committee to look into the bid. This is expected to pave the way for L&T to easily buyout an advantage that could add great value because it looks to diversify into non-core places.

It’s stated that Mindtree won’t be merged with its two other IT companies –L&T Technology and L&T Infotech. The reason for this choice is that it would help also protect minority shareholders of every company, provided the difference and avoid integration issues between both companies.

Cash wise

“This means any purchase synergies and value creation (for L&T) would be postponed,” Quadros said. “Three recorded IT companies reduce shareholder value accretion… L&T Infotech getting Mindtree would have been a much better match. ”
As of December 2018, L&T had cash and cash equivalents of Rs15,000 crore, based on Motilal Oswal. Additionally, it generates cash of Rs1,500 crore every quarter.
After weeks of high-voltage drama over a hostile takeover bid, Larsen & Toubro (L&T) can eventually be close to successfully acquiring a majority stake in mid sized IT company Mindtree.

The organization had last year said it will purchase back Rs9,000 crore worth of stocks.
Additionally, the acquisition of Mindtree may take a chunk of the cash reserves L&T has accumulated, which can be contrary to the management target of making the company thinner, Quadros added.