The Hostile Takeover Battle between Larsen Toubro and Mindtree: Transparency and Accountability

The Indian IT industry has seen its fair share of hostile takeover battles, but the current conflict between Larsen Toubro (LT) and Mindtree is proving to be the most interesting yet. This article delves into the history of hostile takeovers by LT, the events leading to Mindtree's acquisition, and the implications for both companies.

A Legacy of Hostile Takeovers

Larsen Toubro has a rich history of hostile takeovers, dating back to the 1990s. The company faced several hostile takeover bids, with one of the most notable coming from Manu Chhabaria, an infamous corporate raider of Indian stock markets. Chhabaria’s plan was to seize control of various companies and strip them of their assets. One of his targets was Shaw Wallace, the maker of Royal Challenge whisky, eventually acquired by Vijay Malia.

Chhabaria’s Bid and Mukesh Ambani’s Intervention

When LT stock became majority float, Chhabaria attempted to gobble them up, aiming to seize control of the board. However, Dhirubhai Ambani rescued LT and appointed Mukesh Ambani to the board. This move led to LT working on full credit for Reliance, as the government took large stakes in LT as part of major contracts. Manmohan Singh is said to have called Ambani and requested that LT remain independent. Eventually, Ambani exited the company by selling his stake to the Birlas, but just in the nick of time, the LT chairman appealed to all employees to take shareholdings as a part of an employee trust to stop the takeover. This plan worked, and the Birlas ended up taking only LT’s cement business, now known as Ultra-tech cement.

The 2022 Takeover Attempt

In 2022, LT seemed set to make a hostile takeover of Mindtree, a company known for its IT services. However, Mindtree’s board was united in their opposition, and the bid seemed destined to fail. Tragically, the success of the takeover bid came at a cost, with the bankruptcy of Mindtree’s key promoter, VG Siddhartha. LT acquired Siddartha’s 20% stake and took control of Mindtree. However, this move was not enough to save Siddhartha, who tragically committed suicide a year later.

LT’s Controversial Reputation

LT is often portrayed as a non-transparent and corrupt company, particularly within the IT sector. This reputation is not surprising given the numerous allegations and incidents surrounding the company. For instance, it has been alleged that Cognizant used LT to bribe government officials in India. The IT wing of LT is often seen as a mirror of this corruption, with the government investigating alleged misuse of land by LT.

Employee Treatment and Corporate Culture

LT’s corporate culture is often cited as one that values short-term financial gains over the well-being of its employees. The company is known for its ‘hire and fire’ policy, where experienced employees are often let go once a project is completed. This policy has led to a general fear among employees at LT Infotech, as they are always uncertain of when management might terminate their employment. The lack of job security in such an environment has led many to question whether LT’s acquisition of Mindtree will bring about any significant improvement or cultural shift.

Impact on Mindtree and Future Prospects

Mindtree, on the other hand, is often seen as a company with a murky track record. The company has struggled with issues of regionalism and nepotism, and employees have expressed their reservations about joining the merged entity. There is a general consensus that even if LT acquires Mindtree, it is unlikely to transform into a company of the stature of Accenture, Infosys, or Deloitte.

Political Analogy and Long-Term Implications

In a political analogy, the merger between LT and Mindtree can be seen as a collusion between the Samajwadi Party and the Bahujan Samaj Party (BSP). This merger is likely to erode the wealth of investors in the long run and is unlikely to provide a consistent talent pool for the merged company.

Conclusion

The hostile takeover battle between Larsen Toubro and Mindtree is a complex issue with deep roots in the Indian corporate landscape. With a legacy of hostile takeovers and a current reputation for corruption and questionable business practices, it remains to be seen whether this merger will bring positive changes to either company. Transparency and accountability will be key factors in determining the success of this strategic move.