According to Sebi norms, a share buyback is possible only when an open offer is in place after receiving approval from 75 percent of the shareholders
The corporate battle between L&T and Mindtree entered the next phase on Tuesday with the construction-to-engineering major issuing a public statement on its open offer, which will start on May 14, while the board of the Bengaluru-headquartered firm decided to drop its buyback plan.
After its previous board meeting on March 20, the Mindtree board informed the exchanges it would constitute a committee of independent directors to evaluate the open offer proposal of L&T.
“The board has decided not to proceed with a buyback of equity shares of the company. Further, it decided to immediately constitute the Committee of Independent Directors in the interests of all stakeholders to provide their reasoned recommendation in respect of the unsolicited offer by L&T,” Mindtree said in an exchange filing. Apurva Purohit, a lead independent director, will act as chairperson as well as a spokesperson for the committee, which will be supported by legal and financial advisors to evaluate the aspects of the offer.
Industry watchers said while the committee was formed in accordance with the regulations of the Securities and Exchange Board of India, the annulment of the proposed buyback plan could have happened owing to the perceived difficulty in garnering the support of 75 percent of the shareholders.
According to Sebi norms, a share buyback is possible only when an open offer is in place after receiving approval from 75 percent of the shareholders. With L&T holding 20.32 percent in Mindtree, it was challenging to receive the green signal from 75 percent of the shareholders.
“The founders don’t have much option left because, after L&T’s open offer, no change in the capital structure is allowed. The only thing they (the founders) can do is to convince the shareholders not to participate in the open offer by articulating that L&T buying Mindtree is not good for them,” said V Balakrishnan, chairman of Affinity Venture Partners and a former chief financial officer (CFO) and former board member at Infosys. “The best course is to sit, discuss and find a middle path.”
Meanwhile, after acquiring 20.3 percent from Mindtree’s key shareholder V G Siddhartha, L&T on Tuesday said its open offer for Mindtree would open on May 14 at Rs 980 a share. But large shareholders and analysts said the response from Mindtree’s shareholders to the offer would be muted, which could lead to L&T sweetening the offer.