Why Street is divided over L&T Infotech-Mindtree merger

Mindtree shares were down by Rs 93.1 or 2.8 percent at Rs 3,281.6 apiece, having slid to as low as Rs 3,206.9 apiece in intraday trade.

LTI will hold a 68.7 percent stake in the combined entity, which will be called LTIMindtree.

Analysts however remain divided on the proposed merger between the two IT services giants.

Apurva Prasad, Research Analyst-IT at HDFC Securities, believes the amalgamation will be positive for both companies.

"The deal itself is quite positive. It opens up substantial cross-sell opportunities, revenue synergies as well as cost synergies that over a period of time can be fairly strong," he said.

However, JPMorgan downgraded both the stocks. It is of the view that there are significant amalgamation challenges in store for the companies. According to the financial services firm, L&T Infotech CEO Sanjay Jalona’s resignation may have a cascading effect leading to senior management attrition at LTI. There could also be a loss of business focus from consolidation owing to overlapping of functionalities, said JP Morgan.

Prasad agreed that challenges do remain but only in the near-term.

"There is some risk mitigation that needs to happen and should probably be more work-in-progress, whether it is competition becoming more aggressive in some of the short cycle deals or some of the transition leadership that's going to play out," he said.

Despite the divided views on the proposed merger, AM Naik, Chairman of LTI, said that the move will be a win-win for all.

"This merger represents our continued commitment to grow the IT services business in line with our strategic vision. The highly complementary businesses of LTI and Mindtree will make this integration a ‘win-win’ proposition for our customers, investors, shareholders, and employees," he said.