L&T’s open offer to Mindtree shareholders may further get delayed as regulator SEBI is scrutinising the conditions around the open offer. Sources close to the market regulator as well as L&T told BusinessLine that the open offer to acquire 31 per cent of Mindtree shares from the open market is likely to get delayed further.

According to SEBI’s Substantial Acquisition of Shares & Takeovers (SAST) Regulations, a company can trigger the open offer only when it has crossed the threshold of 25 per cent voting rights.

“It is clear that the regulator is looking at whether L&T can trigger an open offer since at the time of making the (open offer) announcement, it held less than 25 per cent in Mindtree, which seems to have grabbed the regulator’s attention” said a source. SEBI did not respond to the comments.

On March 26, L&T had provided a public statement on the open offer to the shareholders of Mindtree.

Mindtree said it has asked for clarification from SEBI on the legality of such an offer.

BusinessLine had recently reported that L&T is expected to mop up 10 per cent more stake only through the open offer route as shareholders of Mindtree expect a sweetened offer. An email sent to L&T did not elicit a response.

Question on legal validity

JN Gupta, founder, Stakeholder Empowerment Services (SES) and a former director at SEBI in a report said open offer gets triggered only if an order placed with the broker crosses the threshold of 25 per cent voting rights, which L&T did not have at the time of launch of the offer. Mindtree has also written to SEBI seeking clarification on whether this offer is “legally valid”.

Another source said that while it is unclear why the regulator is looking at all these things, one of the reasons could be that it is evaluating all possible scenarios from a legal standpoint before giving its nod, as this could set a precedent for other such takeovers.

Industry watchers point out that the regulator needs to act fast. “The more there are delays, it will have a negative impact on the acquisition itself,” said Shriram Subramanian, MD, InGovern.

In a normal buyout case, an acquirer would acquire shares from the open market and if regulatory approvals are not received, the acquirer would hold the shares with an option to either hold or dispose it. “Whereas in a conditional offer (like this), risks generally get transferred to other stakeholders and the acquirer may not be taking any risks. In the present case, the acquirer may not be taking that risk,” noted Gupta.

Since the time L&T publicly stated its intent to acquire Mindtree, the latter has been vehemently opposing this buyout stating that it will erode shareholder value across both the firms, in addition to destroying Mindtree, which reached the $1-billion revenue milestone at the end of fiscal 2019.

Meanwhile, as L&T awaits clearance for the open offer, it has raised its stake by about 2 per cent between May 20 and 24 by picking up shares worth over ₹316 crore, according to data.

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