How L&T Survived a Hostile Takeover, then did the same to Mindtree
In 1987, a sense of apprehension broke out in L&T, when a Dubai-based businessman named Manu Chhabria bought a 1% stake in the company. Afraid of Manu’s hostile takeovers, NM Desai, the former chairman of L&T, approached business tycoon Dhirubhai Ambani for help.
Dhirubhai saved L&T by acquiring a 12.5% stake. Both young Mukesh and Anil were given Board seats at L&T. The stake later increased to 18% for approx Rs. 190 Cr over the next 2 years. Not only did Ambani increase the stake, but he also slowly became the board member and, on top of this, brought his sons Mukesh & Anil to the board!
Now, Dhirubhai Ambani was the one trying to take over L&T !
However, Dhirubhai’s true intentions showed up when he got elected as the chairman, and N M Desai got kicked out of his own company. L&T was a cash-rich entity & so he used a line of credit to buy huge chunks of RIL shares for L&T
When V P Singh became the Prime Minister in 1989, he brought back govt control in L&T via LIC, obstructing every move the Ambanis made. Dhirubhai had no option but to eventually leave his chairmanship Despite Congress’s return in 1991, Dhirubhai couldn’t make a comeback because of the indirect hindrance caused by then Finance Minister Dr. Manmohan Singh via LIC.
In 2001, Reliance exited from L&T by selling its stake to K.M. Birla’s Grasim industries, and for the first time, Dhirubhai lost a business battle.
Now, Birla had eyes on the cement division L&T had! His Grasim was neck to neck in competition with L&T Cement.
To save the company, Naik brought the synergies of all the employees and
asked them to become the owners of the company. So, the L&T’s
employee trust was formed. After months of negotiations and discussions,
In 2003 Birla agreed to exit its stake in L&T and it was sold to
the employee trust.
In return, Birla received L&T cement division and this way Ultratech Cement was born.
Part 2......
How the same L&T did a Hostile Takeover to Mindtree
In a normal scenario, when a company tries to acquire another, it can offer to gain control if it owns a 25 percent stake of the company it is trying to acquire. However, L&T did not own 25 percent ownership of the company. So, L&T used a loophole in the Securities and Exchange Board of India's (SEBI’s) Takeover Code.
As per this, those with a 25% stake or more cannot take over a company unless they make an open offer to acquire the shares and make a public announcement. However, the code also states whether or not one holds shares or voting rights, one cannot take control of the company unless a public announcement of an open offer to acquire those shares is made.
What this means is that using both these sections allows L&T to make an open offer, without having to own 25% shares in Mindtree.
With this takeover, L&T reportedly aims to acquire Mindtree. It has bought a 20.3% stake from Siddhartha and has placed an order with its broker for an on-market purchase of up to 15% of share capital.
V. G. Siddhartha, the non-executive director of Mindtree and the founder-promoter of Coffee Day Enterprises (“CDE”) held individually and through his companies, 20 % shares in Mindtree, whereas the promoters of the target company collectively held only 13.32 % shares in the company. Since Siddhartha and his company were burdened with debt and urgently needed to liquidate his holdings in Mindtree, Siddhartha asked L&T to acquire their shares. By acquiring Siddhartha’s shares in 2019 at the rate of Rs. 981/- per share, L&T’s shareholding in the target company far exceeded that of the promoters. L&T then made an open offer for the purchase of 31% shares.
When the matter was under consideration by SEBI, L&T managed to acquire shares from the secondary market via open market purchases through which its stake reached 28.9%, and eventually, it received SEBI’s approval.
Despite opposition from Mindtree’s promoters, L&T managed to get enough public shareholders of the software company to tender their shares at ₹980 apiece and complete the open offer two days before its closing date of 28 June.
Comments
Post a Comment