NEW DELHI: Shares of Larsen Toubro (down 1.58 per cent) and Mindtree (down 1.92 per cent) dropped Tuesday morning as the engineering conglomerate bought a 20.32 per cent stake in the IT exporter for Rs 3,269 crore from early investor V G Siddhartha.Larsen Toubro Infotech (up 0.11 per cent) moved with nominal gains.
The Mumbai-based engineering firm will pay Rs 980 per share, LT and Mindtree said in separate filings to the BSE.
LT is expected to spend as much as Rs 7,464 crore to raise its stake to 66.32 per cent in the IT services firm, which will remain an independent listed entity.
The deal includes an open offer to acquire 31 per cent shares at Rs 5,030 crore and an advisory to its broker Axis Capital to buy as much as 15 per cent shares from the open market to the tune of Rs 2,434 crore, according to the regulatory filings.
LTs rationale for the deal is that the transaction is in-line with its strategy of focusing on services and asset light model.
Mindtree will remain an independent listed entity and will gain access to larger client base.According to brokerage Motilal Oswal Securities, even as LT has said Mindtree will remain an independent listed entity, they may eventually merge.
"There is little case for owning two businesses competing with each other in the attractive segment of digital deals.
So, the two should eventually merge," the brokerage said in a report.The brokerage house further said the acquisition doesnt impact the overall consolidated earnings of LT meaningfully while the proportion of services business to consolidated earnings increases.
"RoE expansion on account of purchase of non-core business is not the preferred way for LT shareholders as it risks long-term de-rating of core business.
This also limits the scope of buyback, going forward, as the cash will be exhausted.
The stock has been an underperformer over the past month or so on account of an overhang of the above hostile acquisition," the brokerage added.