Understanding the market trends and bids for hostile takeovers or investment strategy is of prime importance in investment banking and financial careers, which are evidence and data based on their forecasts. The L&T case study is an interesting example of how one can use the strategy effectively in takeover bids or in placing investment bids based on smart predictions and forecasts of the capital markets.
The L&T group is well known in the capital markets with L&T‘s construction division securing the order for the 2nd phase of Bangalore Metro and L&T Infotech completing the acquisition of four companies including Neilson and partners of Germany. L&T Infotech went public in the year 2016, and its latest move to spur its growth by the acquisition of MindTree is hotly debated in trading circles.
Markets are abuzz with rumours of VG Siddhartha the Cafe Coffee Day founder and largest stakeholder in Mindtree striking a deal for selling his 20% stake in MindTree to L&T Infotech. For L& T the Mindtree acquisition will give it global presence and the much-needed portfolio expansion of its investment strategy and a potential area for expansion into IT services, media and technology industries the forte of Mindtree which reported a Q3 profit with a 35 percent increase in consolidated and net profit.
Is it a hostile take-over?
According to Mint, its inside sources claim to have knowledge of India's giant construction and engineering company, and that Siddhartha is all set to seal a binding deal closure in the nearby future which triggered a hostile bid for the takeover of MindTree. L&T has offered to up its stakes to 51 percent to ensure a loss of control by the current management team of Mindtree.
The promoter’s of Mindtree and its founding members Subroto Bagchi, Krishnakumar Natarajan, Rostow Ravanan and N.S. Parthasarathy is an unhappy lot, with a collective stake of a mere 13.32 percent and are set on resisting such a move which is evident from their resistance to the M&A offers in the recent past. Large fund operators in the private equity market like Baring PE Asia and KKR & Co are also not so shy in showing interest in acquiring MindTree.
CCD founder VG Siddartha’s story:
Early investor Siddhartha acquired an interest in Mindtree in 1999 and systematically built up his investments to a large holding of 3.3 percent of the stakes with 54.69 lakh shares by 2018 Q4.
His firms Coffee Day Enterprises Ltd owned more than a 10.63 percent stake of 1.74 Cr shares of MindTree and Coffee Day Trading Ltd, accounted for 6.45 percent of the shareholding. Ashok Soota, the former chairperson and shareholder, were effectively bought out by systematically planned buying of a stake in MindTree by Siddhartha. It is of interest to note that management rights are not included in the large stakeholding and Siddhartha vacated the MindTree board last year.
Is it just a smart investment strategy?
Per the daily Mint’s reporting, Siddhartha the CCD founder borrowed a sum of 3,000 Cr Rs by pledging his entire personal and firms holdings in Mindtree to various foreign and domestic lenders. His repayments of loans have been irregular, and it is anticipated that lenders may invoke the share pledges if he fails to repay and regularise his borrowings from the capital markets.
This move will impact the bid by L&T to take over Mindtree’s control. L&T hence quickly offered to step in with a letter-of-comfort providing a two-month moratorium on the pledge invocation measures initiated by the lenders. L&T Infotech, which is into digital and technology consultancy solutions, is making a smart move in getting market antitrust approvals from its market represented areas like the US, India and European Union countries.
Mindtree, with its profitable and robust presence in the fields of technology and media, was ripe for a potential sale of stake by Siddartha. It could be an ingenious investment strategy to bail him out with the two-year moratorium. But the resistance of stakeholders and voting partners of MindTree add credence to a hostile takeover bid.
Whether it is a hostile take-over or investment strategy, these trends are best evaluated by doing a Capital Market Course with reputed training partners like Imarticus Learning. It is crucial that you know how to use predictive analysis, data analytics and big data if you are a career aspirant in the investment banking field of capital, equity, and debt markets. Hurry and enroll!