The transaction is subject to regulatory approvals and others. Currently, the companies will continue to function independently.
Meanwhile, a Steering Committee will be constituted to oversee the transition till the merger process is complete.
In a statement today, Mindtree stated that significant scale benefits are anticipated through Mindtree and LTI’s complementary strengths resulting in a stronger portfolio of offerings across verticals. Enhanced customer engagement and delivery model through the industrialization of delivery and streamlined value-enabling processes is expected to result in improvement in large deal capabilities. These opportunities will create a more distinctive employee value proposition and stronger partnerships with ecosystem players.
A. M. Naik, Chairman, Mindtree, said, “This merger represents our continued commitment to grow the IT services business in line with our strategic vision. The highly complementary businesses of Mindtree and LTI will make this integration a ‘win-win’ proposition for our customers, investors, shareholders, and employees."
On BSE, Mindtree shares closed at ₹33,74.65 apiece down by 3.88%, while LTI shares ended at ₹4593.10 apiece lower by 3.64%.
Here are key highlights of the merger and post-development.
1. Transaction Structure:
Mindtree which has a market cap of ₹578.4 billion, is set to merge with L&T Infotech which has a market valuation of ₹836.2 billion. Mindtree is a leading digital transformation partner, while LTI is global technology consulting and digital solutions company.
Post the merger, subsidiaries and associates of Mindtree will become part of LTI.
The merged entity will be named ‘LTIMindtree Limited’, subject to approvals.
2. Pro-forma Shareholding:
Under the amalgamation agreement, Mindtree shareholders will receive 73 equity shares as on the record date of LTI (having a face value of Re 1 each) for 100 equity shares of Mindtree (having a face value of ₹10 each).
Larsen & Toubro who is the parent of both the company will hold a 68.73% stake in the combined entity.
3. Timeline and Approvals:
The LTI and Mindtree merger is subject to approvals from shareholders, creditors, and regulatory approvals including from stock exchanges and NCLT.
The transaction is expected to be achieved within 9 to 12 months, subject to the completion of shareholder and regulatory approvals.
4. Merger to significantly enhances scale and bridge gaps with larger peers:
As per LTI's investor presentation intimated on stock exchanges, the merged entity will hold a combined revenue of $3,513 million, while EBIT will jump to $ 625 million and PAT to rise to $530 million.
By the FY22 end, LTI's revenue stood at $2,102 million, EBIT at $363 million, and PAT at $308 million. Mindtree's revenue came in at $1,411 million, EBIT at $262 million, and PAT at $222 million.
Cash and investments of the combined entity will jump to $$991 million. While the headcount to climb to 81,719 employees post-merger.
LTI currently has 46,648 employees by FY22, Mindtree has 35,071 employees.
5. Merger will lead to complementary industry capabilities:
On the top-line front, the combined entity's BFSI segment will have a revenue share of 35%; while the communications, media & technology business will hold a 25% revenue share.
Also, the combined entity's manufacturing, CPG, retail, and healthcare business will account for 26% of the revenue share. Further, energy & utilities, and travel, transportation & hospitality businesses will account 5% share each in total revenue.
6. Merger will lead to diversified and balanced operations across geographies:
Post the merger, together the company's revenue will rise to $2,442 million in the American region - accounting for 69% of the total revenue share.
Further, revenue in the Europe region will be $594 million - accounting for 17% of revenue share. While revenue in the Rest of the World (RoW) will be $477 million - accounting for 14% of total revenue.
7. Merger will deliver higher value for all stakeholders:
For clients, LTI in the presentation highlighted that the merger will give diversified end-to-end offerings, along with an ability to bid for large contracts and improve win rates. Further, deeper domain expertise will emerge from the combined entity.
For partners, LTI outlined that the merger will bring in broader collaboration opportunities, improved integrated solutions, augmented intellectual capital, and stronger implementation capabilities.
For investors, LTI pointed out that the merger will bring in a strong consolidated financial position and diversification, profitability improvement, and scale benefits due to the substantially larger size of the business.
Here's what expert say:
On the merger, Abhay Agarwal, Founder, and Fund Manager, Piper Serica, SEBI Registered Portfolio Management Service Provider said, "The LTI and Mindtree merger was highly anticipated and is therefore not a surprise. They both have the same parent and operate in an industry where size is now a very important competitive requirement for growth."
Agarwal added, "The merger will allow the company to bid for larger global deals. It is a complementary merger since LTI is focused on BFSI and Mindtree on communications verticals. This merger will hopefully help reduce the high attrition rates. Overall, it should lead to shareholder value creation, especially since both companies have seen a sharp correction in their share prices recently. However, the resignation of Sanjay Jalona is a negative surprise since he was credited for the rapid growth of LTI since its IPO. Hopefully, the company will provide more details on the proposed leadership structure of the merged company to assuage shareholder concerns."
