L&T Info, Mindtree announce merger: Swap ratio set at 73:100

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Larsen & Toubro on Friday announced the merger of two of its information technology services subsidiaries — L&T Infotech (LI) and Mindtree. This comes three years after L&T acquired Mindtree in what was then perceived as a hostile takeover.

After the merger, the combined net sales of the merged entity will be Rs 26,194 crore, thus catapulting it to the sixth-largest position in the segment, just below Tech Mahindra. However, in terms of market cap, the merged entity will rank fifth at Rs 1.36 trillion, beating Tech Mahindra.

The combined entity will be known as LTI Mindtree and the merger is expected to be completed in 10-11 months, once regulatory approvals are in place. The merged entity will employ 80,000 personnel. L&T said there are no plans to merge L&T Technology Services, another subsidiary of L&T, with these firms.

Once the merger is completed, 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 the BSE. Larsen & Toubro will hold 68.73% of LTI after the merger,” an L&T Infotech statement said. Prior to the merger, L&T owned 61% of Mindtree and 74% of LTI.

The combined entity will be led by Mindtree CEO Debashis Chatterjee, while L&T Infotech CEO and MD Sanjay Jalona has put in his papers citing personal reasons.The synergy comes from volume, economies of scale and cost arbitration. Generally, our deal sizes are in the range of $25 million, and some customers have given us $50 million deals, but there were enquiries for $100 million contracts. So, we are now eyeing those big deals,” AM Naik, group chairman, L&T, said.

“For the next 3-4 years, IT services business will continue to prosper and we will have to increase our impetus. We will be differentiating even more as a combined entity, and with L&T setting up a number of start-ups, someday we will cooperate with these firms,” Naik added. He said that the integration would also help in containing attrition for the merged entity, which for the industry averages between 18-30%. “Maybe that attrition rate may come down by a percentage or so,” Naik said.

He said there may be some overlap in the businesses between Mindtree and L&T Infotech, but together they will be strong.

Naik and L&T’s CEO SN Subrahmanyan told reporters that both companies will continue to operate as separate entities till the time the merger is completed, with no immediate changes in business unit heads. A steering committee will be constituted to oversee the transition till the merger process is complete.

LTI’s strengths lie in enterprise resource planning, SAP, automation and banking, financial services and insurance, while that of Mindtree includes retail, CPG and media and technology.

The integration would help the entity win bigger bids.

KPMG India Services was the financial adviser, JSA (Advocates and Solicitors) was the legal advisers and Goldman Sachs (India) Securities was the adviser to Mindtree. Ernst & Young Merchant Banking Services were the valuers to Mindtree.

L&T had acquired Mindtree in 2019, while LTI was founded in 1997 as a subsidiary of L&T. Both the companies have grown through acquisitions, with LTI completing seven deals since 2016, including Cuelogic (2021) and Nielsen + Partner (2019), and Mindtree also has done over 10 deals since inception, with the first in 2004.