MUMBAI | BENGALURU: The founders of Mindtree will stay on to stabilise and grow the business at the mid-tier IT services firm that has been rocked by the acrimonious takeover by engineering major Larsen & Toubro (L&T), according to a top company executive.
L&T chairman AM Naik, who took charge as Mindtree’s nonexecutive chairman on Wednesday, met the company’s founders Krishnakumar Natarajan, NS Parthasarathy and Rostow Ravanan, who promised their help after the IT firm’s tepid performance in the first quarter of fiscal 2020.
In its quarterly financial results announced on Wednesday, the Bengaluru firm, now majority owned by L&T, said it had grown at 10.3% in the June quarter over the year-ago period. However, it announced a drop in operating margins to 9%, the lowest in eight years, due to a one-time bonus to employees and increase in wage costs.
“We had a very positive meeting (on Wednesday) with the promoters of Mindtree where they promised support to improve the company’s performance and the share price,” Naik told ET.
Speaking to ET, Mindtree’s Natarajan confirmed the conversation with Naik and the L&T-led board.
“Right now, the focus is on smooth transition and to maintain the business momentum,” he told ET. “There is no time limit. Our aim is to ensure smooth transition,” he said, when asked about how long the three founders expect to remain at Mindtree.
MINDTREE STOCK PRICE PLUNGES 8%
Naik also held a townhall late Wednesday to reassure employees and senior managers that Mindtree’s much-acclaimed open-door and non-hierarchical culture would continue following the L&T takeover.
Since the initial offer in March, when L&T committed a price of Rs 980 per share to acquire the stake of Coffee Day founder VG Siddhartha, Mindtree’s stock price has dropped drastically.
On Thursday, shares fell to a 52-week low at Rs 675.05 intraday before closing at Rs 691.30, down 8.07% on the BSE.
“Mindtree promoters were in no mood to cooperate initially and those who sold at Rs 980 made a better decision. But now the stock has dropped following a poor performance,” Naik said. L&T had offered Mindtree investors Rs 980 per share in the open offer during June.
Mindtree founders, who together own 13.3% stake in the company, did not tender their shares in that offer.
Natarajan declined to comment on specifics or the share price. However, he said the company was on path for faster growth in the year ahead. “The order book reflects the strength of the business in the next quarter,” he said. “We will make sure there is a smooth transition till the new leadership takes over.”
On July 5, the founders who had opposed the acquisition by L&T, calling it hostile, quit the Mindtree board as well as their executive roles. This was after the engineering major gained promoter status with 60.06% stake in the company through a combination of stake purchase from a key investor, open offer and purchase of shares from the open market.
The independent board members of Mindtree said they too were surprised by the abrupt decision by the founders to step off the board.
“We were caught off-guard when they announced it suddenly after our last meeting. We were told that they took the decision to give the L&T management a free hand to run the company,” a board member told ET.
Mindtree, which held its first board meeting after the L&T acquisition, appointed Naik as its non-executive chairman. It, however, did not name a CEO.
Source: Economic Times