Mindtree Ltd.’s top executives forcefully objected to a proposed takeover bid from Larsen & Toubro Ltd., calling it a "grave threat” to the Indian software developer’s future.
On Monday, Larsen & Toubro, Asia’s second-largest engineering firm by market value, agreed to buy 20.3 percent of Mindtree for about 32.7 billion rupees ($480 million) and proposed acquiring a controlling stake in the company. V.G. Siddhartha, the largest shareholder in Mindtree through Coffee Day Enterprises and affiliated entities, agreed to sell the original stake for 980 rupees apiece.
But Mindtree management, including its chief executive officer, countered Tuesday morning with objections to the bid, calling it an "unprecedented” hostile takeover attempt. They argued that Mindtree’s success depends on being able to build long-term relationships with clients and partners, ties they argue would be jeopardized by the Larsen’s acquisition.
"The attempted hostile takeover bid of Mindtree by Larsen & Toubro is a grave threat to the unique organization we have collectively built over 20 years,” according to a statement from the executives, which include CEO Rostow Ravanan and Executive Chairman Krishnakumar Natarajan. "We don’t see any strategic advantage in the transaction and strongly believe that the transaction will be value destructive for all shareholders.”
Mindtree, which counts United Technologies Corp. and Dutch phone company Royal KPN NV as its clients, had also attracted interest from private equity firms including Baring Private Equity Asia and KKR & Co., people familiar with the matter said previously.
"Hostile bids are uncommon in the professional services business since people are the key assets,” Kawaljeet Saluja and Satishkumar S, analysts with Kotak Institutional Equities wrote in a note to clients Tuesday. "These assets are not easy to manage in such situations.”
L&T will have to spend about 107 billion rupees for the purchase, the Kotak analysts said. The software developer’s shares fell 1.7 percent to 946.45 rupees at 10:13 a.m. in Mumbai. Larsen’s shares declined for a second day, dropping 1.7 percent.
Mindtree last week said it will consider buying back shares, in a bid to deter any buyers. Co-founder Subroto Bagchi, who also signed Tuesday’s management statement, said in a tweet Sunday he’s returning to the company to protect it from being taken over.
"Mindtree has not been designed as an "asset” to be bought and sold,” Bagchi said in the tweet. "I need to be there in its time of difficulty. Hence the hard decision to return.”
