Putting all speculations to rest, construction and engineering major Larsen & Toubro (L&T) on May 6 announced the merger of its two software companies, Larsen & Toubro Infotech (LTI) and Mindtree.
The name of the combined entity will be “LTIMindtree”.
The share exchange ratio is as follows:
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The Company shall issue and allot 73 (Seventy three) fully paid up equity shares of face value Re. 1 (one) each of the Company, for every 100 (Hundred) fully paid up equity shares of face value Rs. 10 (ten) in Amalgamating Company.
(a) result in an Amalgamated Company that is expected to have improved financial strength. Particularly, the Companies believe the combined business will augment industry-leading revenue growth and profitability. Further, the Companies expect that their combined balance sheet will provide diverse strategic options and flexibility arising from cost efficiencies and synergies such as optimization of sales, general and administration (SG&A) costs, consolidation of delivery operations (domestic and overseas) and of overseas entities I branches.
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(b) enable the combined business to derive benefits by way of creating more opportunity for growth in customer relationships/ value creation through enhanced attention to brand building, including the corporate brand, develop stronger relationships across its partner ecosystem, using the augmented intellectual capital and stronger implementation capabilities resulting from the Amalgamation.
Particularly, it gives the combined business the opportunity to consolidate its position in the banking, financial services and insurance (BFSI) vertical, enhance scale in high- growth verticals like high-tech and consumer packaged goods, retail and expand into new verticals (such as travel, transport and hospitality).
(e) significantly enhance scale for the combined business and bridge the gap between the Companies and their peers. With this enhanced scale, the Amalgamated Company should be able to bid for larger deals and also drive a cohesive “go to market” strategy across the globe.
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Upon the scheme becoming effective, all shareholders of Mindtree will be issued shares of LTI at the ratio of 73 shares of LTI for every 100 shares of Mindtree. The new shares of LTI so issued will be traded on the NSE and BSE. Larsen & Toubro Limited will hold 68.73 % of LTI after the merger.
AM Naik on the merger
AM Naik, Chairman, LTI, speaking on the merger, said, “This merger represents our continued commitment to grow the IT services business in line with our strategic vision. The highly complementary businesses of LTI and Mindtree will make this integration a ‘win-win’ proposition for our customers, investors, shareholders, and employees.”
The merger of the two publicly listed software firms comes at a time when large IT outsourcing firms are expanding into areas such as cybersecurity, automation, and machine-learning support, moving beyond lower-margin traditional back-room services. That apart, software companies have been witnessing a surge in demand from businesses embracing digitisation, which accelerated during COVID-19.
According to industry experts, the combined entity will enable it to tap into broader market prospects, reduce costs and lower risk.
After the merger, the aggregate revenue of the combined entity will be around $3.5 billion. LTI has a market capitalisation of Rs 1.03 lakh crore, whereas Mindtree has a market capitalisation of Rs 65,285 crore.
By market capitalisation, the combined entity will surpass Tech Mahindra to become the fifth-largest IT services provider. The firm will employ over 80,000 people, including 4,000 sales and support personnel. Currently, TCS ranks first among IT firms with the highest market valuation, followed by Infosys, HCL Tech, Wipro.
This merger is in line with L&T’s strategy of becoming more service-oriented. If the portfolios of the two companies are looked at, the main focus area of Mindtree includes communications media and technology, retail, consumer packaged products, and manufacturing, whereas LTI’s most important verticals include banking, financial services, and insurance.
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Prior to the merger, Larsen & Toubro owned 61 percent of Mindtree and 74 percent of LTI.
Both Mindtree and LTI have grown significantly in the previous two years under the leadership of Debashis Chatterjee and Sanjay Jalona, respectively. Mindtree, the midcap IT company on April 18, reported a consolidated net profit of Rs 473.1 crore for the fourth quarter ended March 2022, registering an on-year growth of 49 percent. In the corresponding quarter last year, the company posted a net profit of Rs Rs 317 crore. And, L&T Infotech, on April 19 reported a consolidated profit after tax (PAT) of Rs 637 crore for the quarter ended March 2022, up 17 percent from Rs 545 crore in the corresponding quarter of the previous financial year.
In 2019, L&T Group successfully completed a hostile takeover of Mindtree. And, the talk of a merger between the two IT companies had been there for a long time.It remains to be seen whether Mindtree CEO and MD Debashis Chatterjee or L&T Infotech CEO and MD Sanjay Jalona will oversee this amalgamated business.
