By Madhurima Ghosh –
In this era of digital transformation, Indian information technology (IT) services sector is growing immensely. The multinational conglomerate Larsen & Toubro (L&T) sees this as an opportunity to merge its IT services business units — L&T Infotech (LTI) and Mindtree into a $22 billion firm. This will make it the sixth largest IT services player from India.
For L&T, this merger has a foresight of becoming more services-oriented. The merger is profitable since both companies have complementary portfolios. For instance, Mindtree pays focus into areas like communications media and technology, retail, consumer packaged goods, and manufacturing while LTI focus lies in banking and financial services, and insurance
Mindtree was acquired by Larsen in 2019. The parent conglomerate holds about a 61% stake in the company, which has a market value of $8.3 billion, and has around 74% of L&T Infotech, which has a market capitalization of $13.6 billion, data compiled by Bloomberg show. According to a source, the merger was always a future option, since both companies have performed very well, this time is chosen to merge them into a bigger unit.
The merger announcement could be announced as early as next week, with details of share-swap ratios as per the Bloomberg report. However, Mindtree has declined this news, saying it is pure hearsay and they would not respond to speculation. Even an email sent to L&T received similar response where they expressed their dislike to comment on speculative news. There was no response against the email sent to LTI.
Whether true or not, the merger buzz did not prove good as the share prices of both companies were down. Mindtree stock was down 3.33 per cent to Rs 3,960.8 per share; LTI stock at Rs 5,866 per share was down 2.66 per cent at the end of trading day.
However, analysts believe the merger timing is not correct. Pareekh Jain, founder and chief executive officer of Pareekh Consulting — an engineering consultancy services firm states, during this surge of growth that these two companies are experiencing, a merger at this time would disturb the focus of the management from capturing growth to managing merger complexities.