The IT sector in India has largely been a gentleman's game, with no hostile takeovers so far. But that has changed with Larsen & Toubro (L&T) looking at a hostile takeover of Mindtree by purchasing V G Siddhartha's stake of the company. By buying up Coffee Day founder VGS's stake, they would now hold 20.3% of the company. This has been L&T's well-publicized first move. Mindtree is in 12 stock screeners today, including top losers, after the news.
As step 2, L&T is buying shares in Mindtree in the open market, purchasing up to 15% this way at a Rs. 980 share price. That would bring L&T's holding to 35.3%. As step 3, L&T has also announced an open offer to Mindtree shareholders, to get 31% of the company. This could bring L&T's stake up to a total of 66.3%, if it succeeds with all three moves.
L&T is clearly looking at growing L&T Infotech, and Mindtree is of a size that could make a difference. But the company has been struggling in recent quarters with order growth and margins, in a highly competitive IT midsize sector. Combine that with other dangers that come with a hostile takeover, such as multiple exits at mid and senior management levels, and the exits of founders, and L&T may have bitten off more than it can chew when it comes to this aggressive tech acquisition.