Hostile takeover bids rare in the IT industry globally, say experts

Such a move by any rival IT firm may lead to value erosion for both entities

During times of speculation that mid-sized IT services company Mindtree may be headed for a hostile takeover by a rival firm, industry experts say such instances are rare in the IT industry globally. 

Besides being a distraction for the management, such hostile action could also result in lingering uncertainty, thus leading to a flight of talent at both the top and mid levels. “Hostile takeovers are not frequent in the IT sector, and as an example, one can think of Oracle’s hostile takeover of PeopleSoft back in 2005-06,” said Hansa Iyengar, senior analyst at London-based Ovum Research.

With V G Siddhartha — founder of Coffee Day Group and the single-largest investor in Mindtree — readying to offload his 21 per cent stake in the firm, many suitors, including rival technology firm L&T Infotech, are said to be interested in buying out his stake. However, the founders — holding 13.32 per cent stake —are resisting any strategic investors coming on board, leading to the possibility of a hostile takeover.

Experts tracking Mind­tree say hostile takeover bids will lead to erosion in value, for both shareholders and the acquirer.

“There will be uncertainty and confusion for the next six months in case of a hostile takeover. This is because the acquirer will have to take CCI (Competition Comm­ission of India) approval, which typically takes around two months. Next, they have to do an open offer, along with the induction of new board members,” said an industry source.

“In all likelihood, there will be a pitched battle at every level. It’s unlikely the Mindtree board will recommend any purchase by a rival technology firm,” the person added.

According to another source, if any rival listed technology firm comes in, it would be in its interest to get a favourable swap ratio, which might lead to value erosion for all shareholders of Mindtree. 

In June 2003, Oracle started making a hostile takeover attempt on PeopleSoft by making a $13 billion bid, which was rejected by the latter’s board. Within eight months, Oracle made a second attempt, which also didn’t fructify. 

To thwart Oracle’s attempt, PeopleSoft offered a ‘poison pill’, allowing its customers to potentially receive refunds of 2-5 times of the amount they had paid to the IT firm, in case of a takeover. Despite such moves, PeopleSoft was eventually acquired by Oracle for $10.3 billion, leading to lay-off of around half of its 11,000-strong workforce.

In contrast, the recent merger of CSC (Computer Sciences Corp) and Enterprise Services business of Hewlett Packard Enterprise (HPE), which created DXC Technology, had received handholding from HP despite unfavourable views from its leadership. 

“Arguably, the CSC takeover of the HP business resulting in DXC was not viewed favorably by the HP leadership. But the HP team worked hard to effect the integration before leaving,” said Peter Bendor-Samuel, founder and CEO of global research firm Everest Group.