While the company argued that declaration of these dividends has been done in normal course of action, corporate governance experts said a status quo would have been more desirable.
“It doesn’t take anything whatsoever from our governance processes. This special dividend is to commemorate Mindtree’s achievement, which is subject to approval of shareholders in the forthcoming AGM. It continuously upholds the standards of governance that Mindtree has,” said Rostow Ravanan, chief executive officer (CEO) and managing director (MD) at Mindtree.
The move, Ravanan said, was not intended to hurt or benefit any shareholder. “When the AGM is held in July, all the shareholders will get a chance to cast their votes. It is in line with our capital allocation policy,” he added.
According to the Sebi (Substantial Acquisition of Share and Takeover) Regulation, the target company has to conduct business which is consistent with its past practice during the open offer period. Mindtree said that the board’s recommendations of special dividend was no way different from its past practices.
“This dividend will go to all shareholders (including L&T, after the share transfer). So, to that extent, it is not a significant issue. However, we don’t know the objective of the acquirer with regard to the cash reserve (of Mindtree). So, in an ideal situation, a standstill would have been more desirable,” said Amit Tandon, founder and MD of corporate governance at proxy advisory firm IiAS.
“I don’t think this dividend declaration is a defensive move as around Rs 30 will not move the needle (for Mindtree shareholders),” he added.
Some experts, however, believe that this move will make the acquisition more expensive for L&T.
“When there is an open offer, a special dividend declaration looks odd. When the acquirer gives a target price for the stock, it takes into account the cash reserve for working capital purposes. If that is reduced, then it affects the cost of acquisition,” said V Balakrishnan, chairman of Exfinity Venture Partners, who is also a former chief financial officer (CFO) and board member of Infosys.
“Now, L&T has to take a call whether it wants to go ahead with the open offer at this price or not,” he said.
After sealing a deal to purchase VG Siddhartha’s 20.32 per cent stake in Mindtree on March 18, L&T mounted a takeover bid on the mid-tier IT services firm by placing orders to buy a further 15 per cent stake from the open market.
Besides, the company also made an open offer to buy an additional 31 per cent stake at Rs 980 per share. For a controlling stake of 66 per cent in Mindtree, L&T is likely to spend around Rs 10,700 crore.
The panel of four independent directors of the IT services firm is evaluating the open offer of L&T for providing reasoned recommendations to the shareholders. The committee has already appointed Khaitan and Company as legal advisor and ICICI Securities as the financial advisor to assist it in this process.
The committee of independent directors will give its recommendations to shareholders on L&T’s open offer by May 10. The open offer, according to L&T’s disclosures, will be conducted between May 14 and May 27.
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