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What is Hostile Takeover? L&T and Mindtree

What is Hostile Takeover? L&T and Mindtree

Recently, the feud between construction giant L&T and Beglauru based IT company Mindtree was in the news. The L&T’s takeover bid of Mindtree was termed as Hostile Takeover.

Definition of Hostile Takeover:

According to Investopedia; A hostile takeover is the acquisition of one company (called the target company) by another (called the acquirer) that is accomplished by going directly to the company's shareholders or fighting to replace management to get the acquisition approved.

Indian Scenario:

India’s corporate sector and economy have changed drastically over the years, with liberalisation, competition, changes in governance practices, and investors from overseas.

Rather than the government explicitly stepping in, securities market regulator SEBI is empowered to regulate takeovers and mergers of publicly listed companies.

India now has takeover rules or regulations, the first ones approved in 1994 and tweaked a couple of times since.

Mindtree:

The rules do not quite define a hostile takeover, except to say that it is broadly an unsolicited bid or attempt by a person without any arrangement or a memorandum of understanding with the persons currently in control of the targeted company.

Hostility arises in the case of the attempt on Mindtree as its founders Subroto Bagchi, Krishnakumar Natarajan, N S Parthasarathy and Rostow Ravanan, who jointly control over 13 %, have opposed L&T coming in, saying it is a threat to the unique organisation that they have collectively built over 20 years and with a differentiated corporate culture.

The trigger for all this is the decision of the firm’s biggest shareholder — V G Siddhartha, promoter of Cafe Coffee Day and son-in law of former Karnataka Chief Minister S M Krishna — to exit by selling his 20.4% share to L&T.

L&T: The History is repeating

Back in 1989, when Reliance was undivided under Dhiru Bhai Ambani, it attempted to take control of L&T. He came on board of L&T with his sons Anil and Mukesh Ambani.

Reliance had to quit and it sold its shares to Birla and soon Birla too left the L&T.

What Next?

Promoters usually start a company but for expansion they sell out their stakeholders. The same is true for Mindtree as its founders are just 13% share in the company and it also means that they have only 13% voting rights in the board.

So founders need support of other investors to halt the hostile bid of L&T.

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