A logo of Larsen and Toubro (L&T) is pictured outside its Corporate office in Mumbai, India May 25, 2016.Reuters

Information Technology major Mindtree Ltd's board has dropped the proposal to buy back its shares, which was aimed at warding off a hostile takeover by engineering and construction giant Larsen & Toubro Ltd. In a separate announcement L&T informed that its open offer to acquire an additional 26 per cent stake in the mid-tier IT company will open on May 14 and end on May 27, while the company is simultaneously scouting for a 15 per cent stake from the open market.

The engineering major has acquired 20.32 per cent stake in Mindtree from Café Coffee Day founder VG Siddhartha and two of his affiliate firms for Rs 32.7 billion.

After a board meeting on Tuesday, Mindtree said that it would not proceed with the plan to buy back its shares and instead formed an independent directors' committee with the mandate to start working on recommendations for the company's shareholders with regard to the L&T's open offer. The move may make it easier for L&T to gain control of the IT company, controlling shareholders of which have been resisting a takeover by the engineering-to-software behemoth.

"The Board invited views from the Directors on the unsolicited offer made by Larsen & Toubro Limited (L&T) for the equity shares of the Company. After detailed deliberation and discussion, the Board in its meeting today, decided to immediately constitute the Committee of Independent Directors (IDC) in the interest of all stakeholders to provide their reasoned recommendation in respect of the unsolicited offer by L&T," Mindtree said in an exchange filing. "All the independent directors will be members of the IDC, and the IDC has elected Apurva Purohit, a lead independent director, as the chairperson of the IDC."

Mindtree's Rostow Ravanan
Mindtress chief executive officer and managing director Rostow Ravanan. Courtesy: mindtree.com

Securities and Exchange Board of India's rules may have played a role in the decision taken by Mindtree's board. According to market rules, a company cannot make changes to its capital structure after the announcement of an open offer, unless it gets the approval of 75 per cent of shareholders through a special resolution. L&T has reasoned that the acquisition of a controlling stake in Mindtree was in line with a strategy to grow the revenue and profit of its asset-light services business portfolio. "The acquisition is expected to be value accreting for both the Company's shareholders and the Target Company's (Mindtree) shareholders in the medium to long term," the engineering major said in a filing.

L&T's bid to acquire Mindtree hit a rough patch after the IT services company's co-founders and controlling shareholders opposed the takeover. The co-founders of Mindtree have been insisting that the top management under Chief Executive Officer Rostow Ravanan has the full support of the entire board and several large shareholders. However, the Mint newspaper quoted some analysts and industry experts that it will be difficult for the co-founders of Mindtree to retain control of the company. Co-founders of Mindtree N Krishnakumar, Subroto Bagchi, NS Parthasarathy, Rostow Ravanan, own close to 13 per cent in the company.