Larsen & Toubro Ltd. announced a merger between two of its publicly traded software firms L&T Infotech Ltd. and Mindtree Ltd. The merger could help unlock potential scale and fight for mega deal wins with other IT giants.
“The Board of Directors of the Company have at their meeting held today, noted and accepted the resignation of Mr. Sanjay Jalona. His last working day will be decided mutually,” wrote LTI in a stock exchange filing.
Earlier on Friday, LTI had announced amalgamation and arrangement with IT services company Mindtree “to create an efficient and scaled-up IT services provider exceeding $3.5 billion.”
Given that recent industry shifts (e.g., prominence of large deals, preference for end-to-end offerings) are benefitting at-scale players, LTI and Mindtree have decided that the time is appropriate to combine the strengths of both organizations to better serve the customers, LTI noted in a statement.
The transaction is subject to shareholder and regulatory approvals.
Upon the scheme becoming effective, all shareholders of Mindtree will be issued shares of LTI at the ratio of 73 shares of LTI for every 100 shares of Mindtree. The new shares of LTI so issued will be traded on the NSE and BSE. Larsen & Toubro Limited will hold 68.73 per cent of LTI after the merger, the statement added.
AM Naik, group chairman of conglomerate Larsen & Toubro said the merger between its two software units L&T Infotech and Mindtree is an excellent proposition and value accretive for shareholders, as the combined entity will create economies of scale and help it go after larger outsourcing contracts.
Naik expects IT services to contribute at least 40 percent to the engineering behemoth’s market capitalization over the next 2-to 3 years
The merger of the two publicly listed software firms comes at a time when large IT outsourcing firms are expanding into areas such as cybersecurity, automation, and machine-learning support, moving beyond lower-margin traditional back-room services.
That apart, software companies have been witnessing a surge in demand from businesses embracing digitization, which accelerated during COVID-19.
According to industry experts, the combined entity will enable it to tap into broader market prospects, reduce costs, and lower risk.
After the merger, the aggregate revenue of the combined entity will be around $3.5 billion. LTI has a market capitalization of Rs 1.03 lakh crore, whereas Mindtree has a market capitalization of Rs 65,285 crore.
While Mindtree CEO Debashis Chatterjee will lead the combined entity, L&T Infotech CEO Sanjay Jalona, who earned the moniker of Mr. Consistent, for leading a stellar turnaround of LTI, will move on.
Naik and L&T’s CEO SN Subrahmanyan told reporters that both companies will continue to operate as separate entities till the time the merger is completed, with no immediate changes in business unit heads.
The revenue for the combined entity is expected to cross $3.5 billion in the coming year, putting it in the top six leagues of Indian IT firms, right after Tech Mahindra, which registered $5 billion in revenue in FY21.
The combined entity will be known as “LTIMindtree”.
The transaction regarding the LTI and Mindtree merger is subject to shareholder and regulatory approvals, LTI has said. Upon the merger coming into effect, all shareholders of Mindtree will be issued shares of LTI at the ratio of 73 shares of LTI for every 100 shares of Mindtree.
“The new shares of LTI so issued will be traded on the NSE and BSE. Larsen & Toubro Limited will hold 68.73 percent of LTI after the merger,” said L&T Infotech in the press release.
It was announced that Mindtree CEO Debashis Chatterjee will lead the combined entity of “LTIMindtree”, while L&T Infotech CEO and MD Sanjay Jalona resigned due to personal reasons.