After its previous board meeting on March 20, the Mindtree board informed the exchanges it would constitute a committee of independent directors to evaluate the open offer proposal of L&T.

“The board has decided not to proceed with a buyback of equity shares of the company. Further, it decided to immediately constitute the Committee of Independent Directors in the interests of all stakeholders to provide their reasoned recommendation in respect of the unsolicited offer by L&T,” Mindtree said in an exchange filing. Apurva Purohit, lead independent director, will act as chairperson as well as spokesperson for the committee, which will be supported by legal and financial advisors to evaluate the aspects of the offer.

Industry watchers said while the committee was formed in accordance with the regulations of the Securities and Exchange Board of India, the annulment of the proposed buyback plan could have happened owing to the perceived difficulty in garnering the support of 75 per cent of the shareholders.

According to Sebi norms, a share buyback is possible only when an open offer is in place after receiving approval from 75 per cent of the shareholders. With L&T holding 20.32 per cent in Mindtree, it was challenging to receive the green signal from 75 per cent of the shareholders.

“The founders don't have much option left because after L&T's open offer, no change in the capital structure is allowed. The only thing they (the founders) can do is to convince the shareholders not to participate in the open offer by articulating that L&T buying Mindtree is not good for them,” said V Balakrishnan, chairman of Exfinity Venture Partners and a former chief financial officer (CFO) and former board member at Infosys. “The best course is to sit, discuss and find a middle path.”

Meanwhile, after acquiring 20.3 per cent from Mindtree’s key shareholder V G Siddhartha, L&T on Tuesday said its open offer for Mindtree would open on May 14 at Rs 980 a share. But large shareholders and analysts said the response from Mindtree's shareholders to the offer would be muted, which could lead to L&T sweetening the offer.

According to the plan, L&T will spend an additional Rs 5,030 crore in the open offer to acquire another 31 per cent from Mindtree's shareholders to take majority control in the company.

It plans to buy 15 per cent additional shares from the market at the same price. The Mumbai-headquartered company had paid Rs 3,270 crore to acquire Siddhartha’s stake.

The large shareholders of Mindtree, however, are expecting L&T to sweeten its offer just before the offer opens, say bankers.

“L&T’s bid implies only a 5 per cent premium over the last one-year price, which lacks a controlling stake premium and, hence, the response from investors may be muted. L&T may opt for an upward revision in the offer price if it falls short of the controlling stake,” said a banker close to the development.

Analysts said the price of Rs 980 was not attractive enough because the share price had fallen from its recent highs. “Whether Rs 980 a share represents an attractive enough price for the open offer to succeed remains to be seen as Mindtree’s stock price is quite close to the tender price. We would expect L&T to sweeten its open offer if the investor response were to fall far short of what’s needed to get to 51 per cent; this development would obviously be beneficial for Mindtree shareholders,” said JP Morgan analysts Viju George and Aayush Gupta.

“The immediate outcome for the Mindtree shareholders is positive, in our view, though the eventual success of an acquisition would depend on L&T being able to retain key Mindtree employees and the share of the client business, and to not disrupt Mindtree’s unique culture, exemplary governance and value systems. Such risks are non-trivial as this is perceived as a hostile bid,” they said.

L&T has said it plans to take its stake up to 66.4 per cent by buying 31 per cent via the open offer and a 15 per cent stake purchase from the market for a consideration of Rs 10,730 crore.

On Tuesday Mindtree closed at Rs 950 a share. In the public announcement on Tuesday, L&T said the offer was value-accretive to the shareholders of Mindtree.

Mindtree’s founders, who own 13 per cent in the company, have objected to the transaction. The founders have expressed their displeasure at the “hostile” takeover bid because they say L&T is a grave threat to the unique corporate culture they have built over 20 years.