No buyback with an open offer in place, say experts
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Synopsis
The Mindtree board will meet because the company has already notified the exchanges.
By ET Bureau
BENGALURU: The board of directors of software firm Mindtree, which is meeting on Wednesday, cannot pursue a buyback plan in view of the restrictions placed by the Sebi regulations, said corporate governance experts.
L&T has appointed Axis Capital and Citigroup Global Markets as managers for the open offer through which it aims to acquire 31 per cent shares in Mindtree. Subramanian quoted Section 26 (2-d) of Substantial Acquisition of Shares & Takeover (SAST) Regulations of the Securities and Exchange Board of India (Sebi), which states that upon the public announcement of an open offer, the board of the target company shall not implement any buyback of shares or effect any other change to the capital structure unless the approval of shareholders by a special resolution by postal ballot is obtained.
The Mindtree board will meet because the company has already notified the exchanges, and the board is empowered to take a call on whether it is appropriate at this stage to pursue a buyback when the open offer is in circulation, said Vivek Mallya, a practising chartered accountant. “From the governance and corporate hygiene perspective it is better to adjourn the subject till such time a price is discovered under the open offer. Independent directors will have the bigger responsibility of protecting the interests of minority shareholders,” he said.
According to him, it is not in the best interests of the company to dip into its own cash reserves when an outsider (L&T) is willing to pay a remunerative price to minority shareholders. “When they have the option to save cash reserves, independent directors have to introspect and conserve the company’s funds for better deployment in future,” Mallya said.
V Balakrishnan, a former board member at Infosys, said once the open offer is in place, the company will have certain restrictions on changing the capital structure. Since the founders of Mindtree have interest in this transaction not going through, he said the independent members of Mindtree board should take a view on the whole transaction and conclude and communicate whether it is in the best interests of all stakeholders, namely employees, customers and investors.
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“The moment an open offer is announced, the company cannot go ahead with a buyback plan at the board level,” said Shriram Subramanian, MD at InGovern Research Services, a proxy advisory services firm.L&T has appointed Axis Capital and Citigroup Global Markets as managers for the open offer through which it aims to acquire 31 per cent shares in Mindtree. Subramanian quoted Section 26 (2-d) of Substantial Acquisition of Shares & Takeover (SAST) Regulations of the Securities and Exchange Board of India (Sebi), which states that upon the public announcement of an open offer, the board of the target company shall not implement any buyback of shares or effect any other change to the capital structure unless the approval of shareholders by a special resolution by postal ballot is obtained.
The Mindtree board will meet because the company has already notified the exchanges, and the board is empowered to take a call on whether it is appropriate at this stage to pursue a buyback when the open offer is in circulation, said Vivek Mallya, a practising chartered accountant. “From the governance and corporate hygiene perspective it is better to adjourn the subject till such time a price is discovered under the open offer. Independent directors will have the bigger responsibility of protecting the interests of minority shareholders,” he said.
According to him, it is not in the best interests of the company to dip into its own cash reserves when an outsider (L&T) is willing to pay a remunerative price to minority shareholders. “When they have the option to save cash reserves, independent directors have to introspect and conserve the company’s funds for better deployment in future,” Mallya said.
V Balakrishnan, a former board member at Infosys, said once the open offer is in place, the company will have certain restrictions on changing the capital structure. Since the founders of Mindtree have interest in this transaction not going through, he said the independent members of Mindtree board should take a view on the whole transaction and conclude and communicate whether it is in the best interests of all stakeholders, namely employees, customers and investors.
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