Mindtree will consider a share buyback proposal in its next board meeting on March 20, the company said on Friday, amid reports that Larsen & Toubro’s (L&T’s) board had cleared a proposal to buy Cafe Coffee Day founder V G Siddhartha’s 21 per cent stake in the mid-size information technology services firm. While Mindtree didn't provide any details on the size of buyback, sources in the know said it could be to the tune of Rs 1,000 crore.
L&T said it didn’t comment on market speculation.
Analysts and IT industry executives said a share buyback when one of the largest shareholders was planning to offload his stake was unprecedented and could create hurdles for any rival technology firm to come on board.
“Looks like there’s a big disconnect between the single-largest shareholder and the management. No company announces a buyback when a large shareholder is trying to sell his stake,” said V Balakrishnan, former Infosys board member and chairman of Exfinity Venture Partners. “As the price goes up, the transaction will be revisited by the interested party. It will now be costlier for any entity to take control of the company.”
Siddhartha is in an advanced stage of discussions with a clutch of entities, including private equity players and L&T, to offload his stake in the IT firm. But with Mindtree founders’ reluctance to shed their stake of 13.32 per cent, the situation has turned tricky.
In January, A M Naik, executive chairman of the L&T group, had confirmed that the engineering major was looking at acquiring a stake in Mindtree.
Mindtree, which had conducted a share repurchase worth Rs 270 crore in 2017, seems to be preparing itself to fight a hostile takeover. Since instruments like buyback usually push up share prices apart from reducing the float, many analysts said the current management might be trying to reward shareholders in a bid to win their loyalty.
“This buyback might be an attempt to get shareholders on the management's side. It will be useful in the case of an open offer, where shareholders have to choose between the current management and a new one," said Pareekh Jain of Pareekh Consulting. "From whichever angle you see, it seems like a classic boardroom battle is about to begin."
Another source close to the development said, "It is prudent policy to reward shareholders who have put faith in the current management for a long time. Also, Mindtree has a track record of giving good amounts of dividends to shareholders. The founders of the IT firm are very serious about retaining control and they will go to any extent.”