Mindtree-Larsen & Toubro Infotech Merger: It's a mammoth merger! The L&T Group has formally announced the operationalisation of the merger of Mindtree with LTI (Larsen & Toubro Infotech). With this, the new entity i.e. LTIMindtree has become the country's 5th largest software firm with a revenue of USD 5.25 billion this year.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

LTIMindtree will begin trading from November 24.

LTIMindtree: 5th largest software company in terms of market capitalisation

Announcing the merger with immediate effect, group chairman AM Naik said that LTIMindtree will be the 5th largest software company in terms of market capitalisation (Rs 1.53 lakh crore of Monday closing).

LTIMindtree: 90,000 employees; ahead of Tech Mahindra and closer to Wipro

-It will have 90,000 employees on its rolls, taking the overall headcount of the software businesses to 1.2 lakh, which includes that of LTTS, spread across in over 30 countries across five continents.

-The new company will be headquartered in Mumbai, and will be independent of L&T, which will also mean that the head of the new entity will not be on the board of L&T, said Naik, who is the chairman of the new entity while L&T chief executive SN Subrahmanyan will be vice-chairman.

-Naik also said, L&T will continue to hold 68.73 per cent in the merged entity.

-At the current market value on Monday closing, the new entity will have an mcap of Rs 1,52,672.23 crore, placing it much ahead of Tech Mahindra and closer to Wipro.

- Of the current mcap, LTI's share is Rs 90,527.45 crore, after closing over 2 per cent up at Rs 5,161.20 on the BSE, and that of Mindtree is Rs 62,144.78 crore, after gaining nearly 3 per cent at Rs 3,766.35.

-As against this, the industry leader TCS commands a market value of Rs 12.2 lakh crore, followed by Infosys at Rs 6.66 lakh crore, HCL (Rs 2.98 lakh crore) and Wipro (Rs 2.17 lakh crore) and Tech Mahindra at a low Rs 1.03 lakh crore.

-Under the merger scheme, wherein Mindtree will cease to exist, a Mindtree shareholder will get 73 LTI shares for every 100 share he/she owns and the record date for share allocation is November 24, said Naik.

"This year, the combined entity is likely to close with a top-line of USD 5.25 billion, including that of the engineering services under LTTS. We expect this to touch USD 6.2-6.3 billion next fiscal. LTIMindtree alone will have a top-line of USD 5 billion," Naik said, adding LTTS revenue exceeds USD 1.5 billion now.

-Without proffering profit numbers, Naik said traditionally both the companies have been booking 14.5-15 per cent in net margin and we hope not only to sustain this but further improve this as we work as single entity.

-The internal target is have the software services verticals fetching at least 26 per cent of the group revenue by FY26, Naik said but did not disclose how much is the share now.

-While LTI has over 400 clients now, Mindtree, which L&T took over through a hostile bid in 2019 for over Rs 11,000 crore, serves over 300 clients, and both companies earn 70 per cent of their revenues from North America, and Debashis Chatterjee, the chief executive and managing director of LTIMindtree, said the revenue share will continue to remain so.

-The two companies announced the merger in May 2022 and the operationalisation of the merger follows the approvals from the Mumbai and Bengaluru NCLT benches. The company clarified that it does not need the approval of the fair trade watchdog CCI.

-The merger is to up-sell and cross-sell and reap the benefits of the synergies each company has. Cost savings is not the immediate priority as the focus now is to integrate the HR, sales, marketing and branding and ramp up revenue. We see 1-1.5 per cent cost savings, though near-term, Naik and Chatterjee said.

- LTIMindtree is integral to L&T's technology-led growth vision and is poised to play a crucial role in the expansion and diversification of our services portfolio. The complementary strengths of LTI and Mindtree make this integration a win-win for all the stakeholders, furthering our tradition of innovation, excellence, and trust, Naik said.

-SN Subrahmanyan, chief executive of L&T, and vice-chairman of LTIMindtree, said this integration is much more than just the coming together of two successful companies. It is about turning the collective wisdom of the two companies into a much larger force for creating long-term value for all our stakeholders.

-Chatterjee said they have briefed all their 70-odd clients in advance and they are happy about the merger. By combining their strengths and unlocking the benefits of scale, LTIMindtree will operate with a stronger, diversified portfolio of end-to-end services and skills across a wider market footprint, Chatterjee said.

-A stronger balance sheet will augment the company's ability to make strategic investments in platforms, talent, technologies, and client relationships. All this will help us create a more distinctive value proposition for its clients who number around 750 now, teams, and communities at large, Chatterjee said.

Timeline

- In March 2019, L&T announced a takeover bid on the Bengaluru-based Mindtree, promoted by N Krishnakumar, NS Parthasarathy, Subroto Bagchi and Rostow Ravanan, who along with their families owned 13.32 per cent in the firm.

- And in June, L&T completed an open offer at Rs 980 a share and took 60 per cent control after it could buy out the 20.4 per cent stake held by the coffee baron VG Siddhartha and his affiliate firms.

- Combined L&T has paid close to Rs 11,000 crore for the takeover, including the Rs 4,988.82 crore paid in the open offer for buying the 31 per cent additional stake at Rs 980 a share.

Against Moonlighting

-Chatterjee said they are against moonlighting by its employees and will completely ban it once the present hybrid model of work ends and all the staff rerun to offices. He also said the pre-merger hiring plans announced by each company will continue and the new entity will honour all the offer letters.

Attrition?

-On the high attrition in the sector, wherein Mindtree has a higher churn level than the industry, Naik said ideally when the current boom ends as the companies are cutting costs across the board, the industry-level employee churn should come down by 4-5 percentage points from the present 23-24 per cent.

-Chatterjee said the merger is built on the premise of combining the synergies, and so the first impact will be on revenue and profit and cost savings will more be back-ended and not front-ended, which should in the near term be 1-1.5 per cent.

Special Dividends?

-On a question on any special dividends for shareholder, he said, both companies have been offering 35-40 per cent of the free cash flow in shareholder payouts in the past the same will continue even after merger.

(With PTI inputs)