Lti and Mindtree merge in share swap agreement
BENGALERU : Larsen and Toubro Infotech Ltd (LTI) and Mindtree Ltd, the two publicly traded units of India’s largest engineering company, have agreed to merge to form India’s fifth most valuable software company , beating Tech Mahindra Ltd.
Mindtree shareholders will receive 73 shares of LTI for every 100 shares held. Parent Larsen and Toubro Ltd will own 68.73% of LTI Mindtree, as the merged entity will be known. The transaction is subject to shareholder and regulatory approval. The merged entity will be valued at ₹1.35 trillion in Friday’s share price, surpassing Tech Mahindra’s ₹1.25 trillion market capitalization.
Mindtree Managing Director and Managing Director Debashis Chatterjee will lead the combined entity, while LTI Managing Director Sanjay Jalona has stepped down, citing personal reasons. He will serve his notice period but will not stay on to oversee the integration.
The proposed merger will create an entity with combined sales of $3.5 billion that will be able to bid on larger orders and offer a wider range of customer services, as larger customers prefer to hire fewer providers who can offer end-to-end services. .
The merger makes sense on many levels, according to Abhisek Mukherjee, co-founder and director of management consulting firm Auctus Advisors. “In addition to their complementary portfolios, this will create significant scale for the combined entity. Scale becomes a prerequisite to qualifying and winning big deals, which is the holy grail for all IT services companies. Greater access and better conversion of large transactions by the combined entity are things to watch, which will drive both revenue and margin expansion,” he said.
On the other hand, organizational turbulence is something that challenges such mergers of equals, Mukherjee said. “LTI and Mindtree both have deep leadership strength, and how potential overlaps are managed will determine how quickly the combined entity stabilizes,” he said.
On Friday, shares of Mindtree fell 3.9% to ₹3,374.65 while those of LTI fell by 3.6% to ₹4,593.10 on BSE.
The merger comes at a time when tech services companies face record turnover as rivals try to lure workers in with bigger paychecks and promotions, as customers continue to digitize their businesses to meet the challenges of doing business in the post-pandemic era.
Larsen and Toubro said the complementary strengths of LTI and Mindtree will result in a stronger portfolio of offerings.
“This merger represents our continued commitment to grow the IT services business in line with our strategic vision. The highly complementary businesses of LTI and Mindtree will make this integration a ‘win-win’ proposition for our customers, investors, shareholders and employees,” said AM Naik, Chairman of Larsen and Toubro Group.
Larsen and Toubro acquired Mindtree in 2019, marking the first hostile takeover of a company in India’s IT sector. The founders of Bengaluru-based Mindtree initially resisted the takeover but could not prevent the Mumbai-based company from acquiring a majority stake.
Mindtree’s profit increased 49.1% from a year ago for ₹473.1 crores in the March quarter, while revenue grew 37.4% for ₹2,897.4 crores.
Meanwhile, LTI’s profit rose 16.8% to ₹637.5 crores and revenue jumped 31.6% to ₹4,301.6 crores.