Mindtree Ltd. has proposed to offer a major special dividend to shareholders which may prove to be another strategy to ward off the ailing takeover bid by Larsenand Toubro Ltd. (L&T).
After a board meeting on Wednesday, the company announced a special dividend of ₹20 per share.
It will also pay an interim dividend of ₹3 per share and a final dividend of ₹4 per share for fiscal 2019.
In total, the company will pay a dividend of ₹27 per share, subject to approval by shareholders at the annual general meeting (AGM) in July. This is the highest ever dividend announced by Mindtree since its inception two decades ago.
“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 Rostow Ravanan, chief executive and managing director of Mindtree.
Ravanan denied that the board’s decision to pay a one-time dividend to shareholders was a poison pill manoeuvre, a way to make an asset less valuable to a hostile buyer.
If the dividend proposal receives approval from shareholders, Mindtree will pay a total dividend of ₹384.30 crore to the public shareholders, with the special dividend of ₹284.67 crore. The promoters will get ₹59.07 crore.
That compares with the ₹256.2 crore the company has in cash and cash equivalents and ₹3,141.9 crore in reserves and surplus.
The Bengaluru-based IT firm said that the special dividend was a way to “celebrate (Mindtree’s) twin achievements of exceeding $1 billion annual revenue milestone and 20th anniversary of the company”.
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. “Should L&T have an acquisition in mind, it may prefer to have the cash remain in the company, else they should be indifferent. As L&T will get to vote on the final and special dividend, they can decide whether they want the money as dividend or not.”
Abhimanyu Bhattacharya, partner at law firm Khaitan and Co., said: “Declaring a dividend is in the ordinary course of business. However, the dividend this time is unusual as compared to their previous payouts. So, it can be seen as a way to appeal to the shareholders in the realm of law.”
Shriram Subramanian, founder and CEO of InGovern Research Services Pvt. Ltd, a proxy advisory firm, said that the Mindtree board had acted in an amateurish way to thwart L&T’s open offer.
“The special dividend is abnormally high,” Subramanian said. “Right now, it just looks like a sweetener for the shareholders so that they favour the board’s resistance to L&T’s takeover and avoid tendering shares in the open offer; however, it is unlikely to impact the open offer process.”