The Larsen & Toubro (L&T) have stolen the limelight across markets, for its aggressive takeover of Mindtree. L&T intents to buy about 66% stake in Mindtree, as top shareholder VG Siddhartha who is founder of CCD, has decided to monetise his stake. Interestingly, Mindtree’s promoters who hold about 13% have been resistant and opposing the L&T bid, by calling it hostile takeover. Mindtree promoters fear that with this merger a detrimental impact on entrepreneurship, employee morale and value for stakeholders. Overall, L&T is looking to pay Rs 10,733 crore for acquiring Mindtree. Since the deal announcement broke-down, there has been correction in Mindtree share, and very slight upward movement at L&T front. 

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However, on Tuesday, Mindtree share was trading at Rs 949.30 per piece up by Rs 9.05 or 0.96% on Sensex at around 1301 hours. The company has touched an intraday high and low of Rs 952.55 and Rs 936.65, respectively. 

On the other hand, L&T share was trading slightly in red at Rs 1,371.65 down by Rs 5.55 or 0.40% on Sensex. In early hours, the stock had touched an intraday high and low of Rs 1,389 per piece and Rs 1,368 per piece respectively. 

Here’s what L&T offers! 

A 20.3% stake acquisition from VG Siddhartha & Associates.

An open market purchase of up to 15% stake.

A mandatory tender offer for up to 31% stake at a maximum price of Rs 980/sh (3.9% above today’s close of Rs 943). 

Together they translate an acquisition of 66.3% stake by L&T in Mindtree. Overall, the cost of acquisition for L&T is seen to be at Rs 10,733 crore.

Currently, the deal is subject to regulatory approval, however, many experts are expecting it to complete in June 2019 quarter. 

Apart from this, L&T has clearly notified that, Mindtree under their ambit will continue to operate as independent entity. Interestingly, experts have also believe that, L&T may look into merging L&T Infotech with Mindtree. 

What will be the outcome of this deal?

Ruchi Burde and Amey Sankhe, analysts at BoB Capitals said, “We see limited scope for substantial margin gains, even as the unlocking of other operational synergies with MTCL operating as an independent entity will be difficult to achieve in our view.”

On Mindtree’s management objections, the duo said, “ such an appeal will have limited influence on passive financial investors or non-promotor shareholders who account for the balance 86.7% controlling stake in the company.”

Where are L&T and Mindtree stocks headed?

In BoB Capital’s view, “We maintain our ADD rating and Dec’20 target price of Rs 1,010 for MTCL, based on an unchanged target P/E multiple of 17x (pegged to Dec’19 earnings). We believe this transaction will create distractions for MTCL’s leadership team which may weigh on operating performance in the near term.”

At the same time, analysts here said, “We do not rule out the possibility of a short-term upmove in stock price amid L&T’s aggressive takeover bid.”