Mindtree’s big fat dividend move to ward off L&T takeover?

Mumbai: Ahead of a potential takeover of the company by L&T, Mindtree’s board on Wednesday proposed to pay a special dividend to its shareholders, including promoters, that along with regular dividend and tax components would strip the mid-sized IT firm of about Rs 530 crore.

The company has declared an interim dividend of Rs 3 per share that will be paid before May 10 and also pay Rs 4 a share in final dividend, besides Rs 20 in special dividend – a proposal subject to shareholders’ nod at the firm’s annual general meeting (AGM) in June or July.

“Given the company has about 16 crore shares, the special dividend at Rs 20 a share alone will translate to a cash payout of about Rs 320 crore. Along with interim and final dividends, besides tax components, the total payout will swell to about Rs 530 crore,” company CEO and MD Rostow Ravanan told reporters at Bengaluru.

Last month, L&T had acquired Cafe Coffee Day owner V G Siddhartha’s 20.32 per cent stake in Mindtree, the open offer is slated to begin on May 14 and close on May 27.

Replying to a question by news agencies, Ravanan said the company upholds the standards of governance and the recommendation of special dividend was made by the board in keeping with the practised norms of the firm.

However, the shareholders will have the ultimate say by using their votes in favour or against the board’s recommendation in June-July after L&T’s open offer ends on May 27, he added.

“The special dividend is to commemorate and celebrate Mindtree’s achievements and the special dividend is anyway subject to shareholders’ approval at the forthcoming AGM,” Ravanan asserted.

He also said the announcement was not meant to either benefit or hurt the interests of any of the shareholders. However, the company would not be in a position to know the objections raised by the shareholders until the annual general meeting takes place, he added.

Our analysis on the matter:

Continuing a stance to buyback and making significant changes to the capital structure may not be welcomed by the regulators at this point in time. Having said that, a big fat special dividend may definitely make a trouble in valuation for L&T’s bid for open offer. Thus making a two pronged move by Mindtree is definitely mindful.

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