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Why are investors concerned with L&T buying shares of mid-size IT Company Mindtree?

05 May, 2019

Larsen and Toubro (L&T) bought 20.32 shares of Mindtree, a multinational information technology and outsourcing company in India for an amount of RS3,269 crore from an early investor V.G. Siddhartha. This purchase will offer an open offer for another twenty-six percent from minor shareholders of Mindtree.

L&T buying shares

Three other major Mindtree mutual fund shareholders have opposed L&T takeover the mid-sized IT Company. They said that they are supporting the current management, which is against the impact that will be made on the company after the engineering and software company conglomeration.

However, they might participate in L&T’s open offer to minority shareholders if the deal favors them.

One of the mutual fund managers said that the continuity of the management is important for an IT company. He added:

“.A different culture and new management tend to unsettle existing clients. If L&T comes in, it is likely that the current management will change and the company will lose its founders that will be detrimental to growth over the next year”.

While L&T now do hold a large stake of Mindtree shares, sixty-eight mutual funds schemes together hold share worth Rs1,300 crore in the IT company. According to data shared by Bombay Stock Exchange (BSE), UTI mutual fund and L&T mutual fund are the top shareholders of Mindtree.

Another manager of a fund, who holds Mindtree shares said that he didn’t like the idea of L&T acquiring Mindtree is because of the uncertainty of the company’s prospect after the deal. He said:

“L&T is a giant, we do not know if they will allow Mindtree to run standalone or merge it with one of their IT companies. From our perspective, the current management is the best bet”.

Another fund manager added that if L&T offers to pay more for the price they agreed with Siddhartha, then minority shareholders may also hop on the bandwagon and tender their shares in an open offer. He discussed his concerns:

“The price difference in the current market price and what L&T has agreed to pay (Rs981 per share) to buy the entire stake held by Siddhartha and two of his CCD firms is just ₹18. That does not make sense for us.”