L&T Infotech and Mindtree merge in stock-swap deal
BENGALURU: Larsen & Toubro Infotech Ltd (LTI) and Mindtree Ltd, the two publicly traded units of India’s largest engineering company, agreed to merge to form India’s fifth most valuable software company, beating Tech Mahindra Ltd.
Shareholders of Mindtree will get 73 shares of LTI for every 100 held. Parent Larsen & Toubro Ltd will own 68.73% of LTI Mindtree, as the merged entity will be known. The transaction is subject to shareholder and regulatory approvals. The merged entity will be valued at Rs 1.35 trillion at Friday’s share prices, surpassing Tech Mahindra’s Rs 1.25 trillion market capitalization.
Mindtree chief executive and managing director Debashis Chatterjee will lead the combined entity, while LTI’s chief executive Sanjay Jalona resigned, citing personal reasons. He will serve his notice period but will not stay on to oversee the integration.
The proposed merger will create an entity with combined sales of $3.5 billion that will be able to bid for bigger orders and offer a wider range of services to clients, given larger customers’ preference for hiring fewer vendors that can offer end-to-end services.
The merger makes sense at multiple levels, according to Abhisek Mukherjee, co-founder and director of management consulting firm Auctus Advisors. “Other than their complementary portfolios, it will create a meaningful scale for the combined entity. Scale is becoming a prerequisite to qualify for and win large deals, which is the holy grail for all IT services companies. Better access and conversion of large deals by the combined entity is something to watch out for. This will drive both revenue and margin expansion,” he pointed out.
On the flip side, organizational turbulence is something that challenges such mergers of equals, Mukherjee said.