Larsen & Toubro (L&T) has decided to merge both its IT services companies — Infotech (LTI) and Mindtree — to create the fifth largest IT services company by market capitalisation in the country. The combined entity, to be called LTIMindtree, will be headed by Mindtree’s current Managing Director & CEO Debashis Chatterjee.

With this LTI’s CEO & MD Sanjay Jalona has decided to move on from the organisation citing personal reasons.

The combined size of the entities exceeds $3.5 billion in revenue. LTI has a market capitalisation of ₹1.03-lakh crore, whereas Mindtree has a market capitalisation of ₹65,285 crore. The merged entity will have 81,719 employees. L&T will hold 68.73 per cent of LTI after the merger. The company is also setting up an independent integration committee and the merger is expected to be closed in 11-12 months.

“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,” the company said.

“The transaction is subject to shareholder and regulatory approval. This merger will help unlock greater value for all stakeholders. Both the companies have shown better performance than other mid-tier companies. Going forward, the merged entities will have scale and resources to take on bigger challenges and deliver,” AM Naik, Group Chairman, L&T, said addressing the media.

No lay offs

Naik added that the workforce across verticals in both the companies will continue to function as it is, given that there is very limited overlapping of products and clients. “The respective leadership knows what they are strong at. Almost 90 per cent of the businesses both the companies do are not mixing,” he said.

As of now there are no lay offs expected as Naik points out having more talent is an advantage in the demand increase situation.

Unlocking mega deals

A key benefit of the merger is the increase in size and the company’s ability to bid for larger deals. As of now, the average ticket sizes of deals for LTI and Mindtree have been around $25 million, barring a few larger deals of $50 million and $100 million buckets. With the new scale and resources, the company expects to capture more large deals.

“We are confident that the proposed merger will help us build on the combined strengths of both these organisations to unlock synergies through scale, cross-vertical expertise, and talent pool. This will help us emerge as a partner of choice for large-scale tech transformations and create a distinctive employee value proposition,” SN Subrahmanyan, CEO & MD, L&T, said.

“Last one year, deal sizes for the companies have any way gone bigger. With the merged entity, synergy comes from volume, economy of scale, cost cutting and large business deals that today customers have been giving to only tier-I companies if the size is more than $100 million. Our size now will help us get much bigger deals,” Naik said.