Larsen & Toubro
A man waits at a bus stop with an advertisement of Larsen & Toubro outside the company's manufacturing unit in Mumbai. L&T may make a hostile takeover bid for Mindtree if its talks to buy CCD founder VG Siddhartha's stake concludes successfully.

Engineering and construction major Larsen and Toubro Ltd (L&T) is preparing the ground for a hostile takeover of Bengaluru-based IT services company Mindtree, according to media reports. L&T is set to sign a deal to buy up the more than 20 per cent stake that Cafe Coffee Day founder VG Siddhartha controls in Mindtree Ltd, the reports say. Once signed, the deal could trigger a hostile takeover bid, with an open offer by L&T, which would have an opportunity to increase its stake to 51 per cent.

A successful L&T takeover could lead to Mindtree's current management losing control of the company and L&T Infotech moving in. Siddhartha was one of Mindtree's early investors having bought a 6 per cent stake when it was founded in 1999. He increased his holdings through the stake that CCD's parent company Coffee Day Enterprises bought up including from Mindtree's former chairman, Ashok Soota, in 2011.

Though Siddhartha has not commented on the talks, sources in the know of the developments, told Mint that Siddhartha had in several tranches pledged almost his entire holding and his two affiliate firms in Mindtree to several domestic and foreign lenders to borrow close to Rs 3,000 crore equivalent to the current value of his 20.4 per cent stake in Mindtree.

"He (Siddhartha) is, however, behind schedule on repayments for several of these loan facilities taken by pledging shares," Mint said quoting an unidentified source. "If he is unable to regularize the accounts, it could lead to the invocation of the share pledge by the lenders."

Mindtree Ltd
Office of Mindtree Ltd.Wikimedia

The report said citing another source that L&T was closely working with the lenders and Siddhartha to work out a solution and "offered a letter of comfort for a two-month moratorium on invocation of share pledges by the lenders". "L&T is seeking a moratorium because it hopes to obtain antitrust approvals in key markets such as India, Europe and the US, where both Mindtree and L&T Infotech (a unit of L&T) are currently present," the Mint report said. L&T is trying to prevent the lenders' invocation of the share pledge that could dampen L&T's chances of taking control of Mindtree.

Media reports last month said private equity firm KKR and Co was in talks to buy Siddhartha's stake and was backing a competing bid by Mindtree promoters, who owned 13.32 per cent stake and wanted to retain control. Mindtree's promoter group includes co-founders Krishnakumar N (3.72 per cent), Subroto Bagchi (3.11 per cent), NS Parthasarathy (1.43 per cent), and Rostow Ravanan (0.71 per cent).