BENGALURU: The major risk in L&T’s battle to take control of Mindtree is the process dragging on and hurting the Bengaluru-headquartered IT firm’s business, analysts said, even as they opined that cultural issues could be managed.
L&T has bought a nearly 21% stake in Mindtree and has made an open offer to get a majority holding. Mindtree’s founders have termed this a “hostile” takeover approach and have vowed to fight it for as long as it takes.
“In this case, it will be important that this process does not drag on but is brought to conclusion quickly. If the process drags on and generates substantial bad press, it can affect future growth,” Peter Bendor-Samuel, CEO of IT consultancy Everest Research, told ET. “Having said that, we have found that clients are quite sticky and will normally give new management time to prove itself.”
Mindtree has said launching a hostile takeover in the IT services space, where clients have long-term relationship with senior executives, was futile and would destroy value. “Now that it has initiated the move, it would be in L&T’s interest to consummate this buyout quickly so that it can hold on to as many key customer relationships and employees — both of which could see a flight if there is prolonged uncertainty,” Girish Pai, head of research at Nirmal Bang, said in a note titled ‘Puzzling One-Sided Love’.
Given that the management is hostile to the deal, it is possible that Mindtree’s business might suffer as executives spend time to fend off the offer, he said. Mindtree’s promoters said on Tuesday that they were doing their best to ensure that business “doesn’t miss a beat”. “Partha is not here. He is in the US chasing business,” Krishnakumar Natarajan, executive chairman and promoter of Mindtree, said, referring to NS Parthasarathy, who is the chief operating officer and also a cofounder of the company.
The founders said employees might vote with their feet if the culture of the company changed. Even though L&T has said it plans to keep to the company separate, Mindtree’s founders said just being part of a group would lead to a change. L&T on Tuesday explained to analysts how Mindtree could be a compelling fit given the varied core expertise of its unit, L&T Infotech, and Mindtree. The company said while LTI does not have exposure to the travel and hospitality sector which Mindtree has, Mindtree has not made inroads into energy and utility. “We will reassure the management and employees that we are coming as an investor and the idea is to keep it (Mindtree) separate,” said L&T CEO SN Subrahmanyan. Having Mindtree, L&T said, could complete the group’s tech services exposure to overall portfolio and enhance its digital footprint at the same time.
“Mindtree has a point (about the problem going hostile) but scale is critical right now as the consolidation of IT services players continues,” Ray Wang, founder of Constellation Research, told ET.
He added that clashing cultures would likely not be an issue. “They will find that they have more in common than they realise,” Wang said.
Peeyush Dubey, currently chief marketing officer at LTI and who had worked with Mindtree in a similar role in the past, said the companies had similar corporate cultures. In a blog post on social networking site LinkedIn, he said the companies, LTI, its parent L&T, and Mindtree, were similar in customer focus, empowering employees, being meritocratic, thinking big and being welcoming to new employees. “I hope things settle down quickly, because I’m certain everyone will benefit from progress,” Dubey said in his post.
Source: Economic Times