Larsen weighs merging tech arms into a $22 billion firm, sources say

Larsen & Toubro Ltd. is weighing a merger between two of its publicly traded software firms, according to people familiar with the matter, as the Indian conglomerate seeks scale to compete with global digital giants.

The boards of Mindtree Ltd. and Larsen & Toubro Infotech Ltd., two software units controlled by the Mumbai-based engineering firm, could consider share swap ratios for the merger as early as next week, one of the people said, asking not to be identified as the information is not public.

Larsen acquired control of Mindtree in 2019. The conglomerate holds about a 61% stake in the company, which has a market value of $8.3 billion, and has around 74% of L&T Infotech, which has a market capitalization of $13.6 billion, data compiled by Bloomberg show.

The two companies have minimal overlap in businesses or clients, and a tie-up would give them better pricing power and lower costs, one of the people said.

Deliberations around the merger are ongoing and the plan could be delayed or fall apart, the people said. A representative for Larsen said the company declined to comment on speculation. Reports about the merger are speculative, Mindtree and L&T Infotech told the stock exchange.

Mindtree on Monday reported fourth-quarter net income of 4.73 billion rupees ($62 million), higher than the 4.41 billion rupee estimate in a Bloomberg survey. L&T Infotech is scheduled to report earnings Tuesday.

The proposed merger comes as software companies are seeing surging demand from businesses embracing the digitization that accelerated during Covid-19. Large IT outsourcing firms are also expanding into areas such as cybersecurity, automation and machine-learning support, moving beyond lower-margin traditional back-room services.

Mindtree closed down 3.5% in Mumbai while L&T Infotech was 2.7% lower. Bloomberg