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MOSL: MINDTREE (Downgrade to Neutral)-In the face of hostility-A distraction that the promoters could have done without

MindTree: In the face of hostility; A distraction that the promoters could have done without

(MTCL IN, Mkt Cap USD2.2b, CMP INR943, TP INR1000, 6% Upside, Downgrade to Neutral)

 

• L&T announced purchase of 20.32% shares of MindTree (MTCL) from the largest shareholder, followed by the intent to buy up to 15% from the open market and making an open offer for up to 31%, taking the total potentially up to 66%.
• While the acquisition is strategic in nature, L&T does not have any immediate plans to merge MTCL with LTI. The two companies will operate separately for now.
• MTCL's promoters have expressed their disapproval of the hostile nature of the transaction and are prepared to fight it out in their attempt to try and retain the control of operations.
• The turn of events may be understandably unsettling for some employees/clients, where the risks of attrition cannot be ignored. The development may also consume a substantial bandwidth of the founders, key personnel in the business. MTCL's stock is up 12% since its 3QFY19 results, and our target price of INR1,000 now implies only 6% upside. As a consequence of the aforementioned factors, we are downgrading our rating to Neutral. 

L&T to initiate buy-in of 66% stake in MTCL

• L&T has entered into a share purchase agreement with V.G. Siddhartha, Coffee Day Enterprise and related parties for the acquisition of 3.3m equity shares aggregating to 20.32% of the paid-up equity capital at a price of INR980 per share.
• In addition to this, L&T has also placed a purchase order for 2.4m shares (15%) at a maximum price of INR980/share in the open market.
• Lastly, it will make an open offer for another 31% at INR980/share. If all transactions go through, L&T will hold a 66% stake in MTCL with a total outflow of INR107.3b