Mindtree queers the pitch for L&T with a Rs284-cr special dividend

IT services company Mindtree, which is in the process of being acquired by Engineering and Construction major  Larsen and Toubro Ltd (L&T), will pay a special dividend of Rs284.67 crore, in a move that could alter the takeover equations.

Mindtree CEO Rostow Ravanan said the special dividend is a way to celebrate $1 billion in annual revenue and mark the 20th anniversary of the company. He denied the special dividend has anything to do with its acquisition by Larsen & Toubro ltd.
Mindtree’s board, at its meeting on Wednesday,  approved a special dividend of Rs20 per share. It will also pay an interim dividend of Rs3 per share and a final dividend of Rs4 per share for fiscal 2019. 
In total, the company will pay a dividend of Rs27 per share, subject to approval by shareholders at the annual general meeting in July. This is the highest ever dividend announced by Mindtree since its inception two decades ago.
If the dividend proposal receives approval from shareholders, Mindtree will pay a total dividend of Rs384.30 crore to the public shareholders.
Analysts see Mindtree’s record dividend payout as a tactic to ward off a looming L&T takeover.
“Given the fact that it’s an important milestone for the company and that it aligns with the policy of being shareholder-friendly and returning cash back to the shareholders, it is in line with our policy," said Ravanan, chief executive and managing director of Mindtree, said.
If the dividend proposal receives approval from shareholders, Mindtree will pay a total dividend of Rs384.30 crore to the public shareholders, with the special dividend of Rs284.67 crore. The promoters will get Rs59.07 crore.
That compares with the Rs256.2 crore the company has in cash and cash equivalents and Rs3,141.9 crore in reserves and surplus.
According to Institutional Investor Advisory Services (IIAS), the special dividend does not move the needle much for investors. “Those who want will still tender," said IIAS, referring to L&T’s open offer proposal. 
On 18 March, L&T announced its plan to launch an open offer to buy an additional 31 per cent in Mindtree after agreeing to purchase Café Coffee Day founder V.G. Siddhartha’s 20.32 per cent stake in the firm for Rs3,269 crore. L&T also said it would buy 15 per cent stake in Mindtree separately from the open market.
The transaction, if completed, will see L&T buy up to 66.32 per cent in Mindtree at Rs980 per share, making the three-part deal the first hostile takeover in the Indian IT industry.
L&T’s open offer for Mindtree will begin on 14 May and close on 27 May.
A fat special dividend could affect the company’s valuation and alter the company’s capital structure significantly.