Even as the time for the recommendation draws close, corporate governance experts have raised questions about the legality of the move. Mindtree said it has asked for clarification from Securities and Exchanges Board of India (SEBI) on the legality of such offer.
Even as engineering behemoth Larsen & Toubro formalised its 20.32 percent stake purchase in Mindtree from VG Siddhartha on Tuesday, questions remain over the legality of the open offer the company proposed, say experts.
L&T signed a definitive agreement to buy VG Siddhartha and his coffee enterprise’s 20.32 percent stake in Mindtree for Rs 3,300 crore in March. The engineering major also placed open market purchase for 15 percent and proposed an open offer for 31 percent of shares. This would take L&T’s total share in Mindtree to 66.32 percent for a total of Rs 10,700 crore.
As per the SEBI’s Substantial Acquisition of Shares & Takeovers regulations, a company can trigger the open offer only when they have crossed the threshold of 25 percent voting rights. Mindtree said it has asked for clarification from Securities and Exchanges Board of India (SEBI) on the legality of such offer.
Rostow Ravanan, CEO, Mindtree, in a recent interaction with Moneycontrol, said, “The clarification we have asked SEBI is that law mandates an open offer only when you have 25 percent shareholding. With less than 25 percent holding how can you trigger the open offer right now?”
JN Gupta, former SEBI executive and founder, Stakeholders Empowerment Services, said in his report that open offer gets triggered only if an order placed with the broker crosses the threshold of 25 percent voting rights, which L&T did not have at the time of launch of the offer.
The report explains that though the company has proposed open market purchase of 15 percent through a broker, it cannot be put into effect immediately since the regulatory approvals need to be in place.
L&T recently received a nod from Competition Commission of India (CCI) for its Mindtree takeover bid. According to a Mint article, the company is looking to buy an additional 6 percent share from open market and will be able to cross its basic target of acquiring at least 26 percent within a week.
However, the question remains about the legality of the offer since L&T proposed the open offer before having the requisite approvals in place.
The publication is awaiting response from L&T for the same. The article will be updated based on inputs from the company.
Another issue raised is that of price of shares. Ravanan said, “Acquisition ought to have happened in a method that discovers price in a fair and transparent way for the benefit of all shareholders.” He pointed out that Mindtree’s remaining shareholders are not getting market-discovered price.
“L&T did a bilateral deal with one person who had their own issues and you can’t impose the same price on others. From shareholder reaction point of view, shareholder associations have written to us asking that question. There is a shareholder interest kind of an angle to it as well,” he added.
Some analysts were of the view that Mindtree’s announcement of special divided for the fiscal FY19 might make L&T revise its offer price of Rs 980 per share. It is not clear yet if L&T would revise its offer.
Mindtree has announced total divided of Rs 27 per share in the light of company’s 20th year anniversary and crossing $1 billion in revenue.
The publication is awaiting comments from L&T on the same. The story will be updated accordingly.
In the meantime, Mindtree’s committee of independent directors are evaluating the open offer and will give its recommendations to its stakeholders by May 10. L&T’s open offer will commence on May 14 and will close on May 27.
