New Delhi: The Boards of Directors of Mindtree and Larsen & Toubro Infotech (LTI) on Friday approved the merger of both these independently listed IT services firms under the Larsen & Toubro Group, aaccording to news reports.


The proposed integration of these two software services companies will create a new IT services provider exceeding $3.5 billion. The transaction, however, is subject to shareholders' and regulatory approvals.


L&T, the Mumbai-headquartered engineering behemoth, runs the two IT firms.


For a long time, there has been talks of a merger between Mindtree and L&T Infotech. According to the reports, the boards of the two IT companies are expected to meet in May to finalise the terms of merger.


The proposal of merger arises after witnessing robust demand from IT services business, mostly during the pandemic as more people embraced digitisation.


It is learnt that major IT service companies are also expanding into areas such as cybersecurity, automation, and machine-learning support, moving beyond lower-margin traditional back-room services.


According to analysts, the merged entity will be able to move forward in tapping broader market prospects, reduce costs, and reduce risk.


The two firms, Mindtree and LTI, have grown significantly in the past two year. Mindtree is managed by Debashis Chatterjee, while LTI was under the leadership of Sanjay Jalona.


However, it is not clear under whose leadership the merged entity will function.


In 2019, L&T made a hostile takeover of Mindtree, the first such of an Indian software company.


L&T owns 61 per cent stake in Mindtree, which has a market capitalisation of $8.3 billion. Meanwhile, L&T also owns 74 per cent in L&T Infotech and has a market capitalisation of $13.6 billion.


Their total revenue of the two companies is estimated to be around $3.5 billion.


The amalgamated LTI will surpass Tech Mahindra to become the fifth-largest IT services provider in the country in terms of market capitalisation. The combined entity will employ just over 80,000 people, including 4,000 sales and support staff.