MUMBAI: Facing promoter opposition in its bid to buy Mindtree, Larsen & Toubro (L&T) defended its acquisition saying it is “not a corporate raider” but a professionally run, entrepreneurial company seeking to work with another like-minded entity to realise bigger aspirations in technology services.
“It shouldn’t be seen as a hostile takeover,” L&T chief executive and managing director S N Subrahmanyan told TOI in an interview. “We didn’t go looking for Mindtree. Its largest shareholder, V G Siddhartha, approached us with a deal after he tried engaging with the founders regarding his exit. Being a founder-investor, he was emotional about to whom he would sell the stake,” he said.
“He (Siddhartha) wanted to sell his shares to a company that has values similar to Mindtree,” said Subrahmanyan, adding that, “L&T is the best home for Mindtree in the country. L&T provides Mindtree protection from any other hostile takeover.”
Coffee Day founder Siddhartha sold his entire 20.32% stake in Mindtree to L&T for Rs 3,269 crore on Monday. L&T has placed orders with brokers to pick up another 15% from the open market, followed by an open offer for an additional 31%. If successful, L&T will have a 66.32% stake in Mindtree for nearly Rs 11,000 crore, or $1.6 billion.
The 57-year-old L&T chief said there was no intention to merge the Bengaluru-headquartered Mindtree with its technology services business. “We would provide board oversight, customer connections, network and balance sheet, which Mindtree can leverage while bidding for large contracts,” Subrahmanyan said, who is also called SNS. If combined, the conglomerate’s IT services businesses (L&T Infotech and L&T Technology Services) and Mindtree could move up to the sixth slot in terms of revenues totalling $3 billion among Indian software services companies, from the eighth position.
L&T hoped that better sense, maturity and rationality will prevail among Mindtree promoters, who have described the takeover attempt as a grave threat to their “unique” organisation. Subrahmanyan said that it is understandable that one of the long-time shareholders has exited Mindtree and “emotions do play a part, but business is business”. He added that if L&T doesn’t acquire Siddhartha’s stake, someone else would as he has been wanting to exit Mindtree for some time.
Interestingly, six years ago, Mindtree promoters had approached L&T with a takeover proposal but L&T had other priorities then. At that time, Siddhartha wasn’t keen on selling his stake in Mindtree.
Subrahmanyan said that there are no plans to disturb the existing management of Mindtree and that the promoters could continue with the company. “Krishnakumar (Natarajan — one of the Mindtree promoters) is a personal friend. He had also come for my son’s wedding last week and we spoke this morning as well… We will continue to have a dialogue with the Mindtree management,” Subrahmanyan said, emphasising that there was a certain “inevitability” about L&T’s presence in Mindtree now.
“We are putting big money in Mindtree. The money made by the sweat of our employees. We are also equally emotional and sentimental…,” Subrahmanyan said. “We are not raiders but a nation-building company. We build missiles, nuclear-powered submarines and artillery guns safeguarding the country. I want to tell Mindtree founders to be more positive about the latest developments,” he added.
Subrahmanyan reminded that L&T, the $18-billion conglomerate, is an 80-year-old company with the highest governance standards, 90% repeat clients and 1.14 lakh employees, who have been working with the group for 20-30 years on an average. “So, obviously we are doing certain things right. We have respect for what Mindtree founders built from scratch, just like how we did in the IT businesses. We understand that Mindtree has possibly the lowest attrition in IT services, and we are willing to learn best practices and industry benchmarks from them,” the CEO, who succeed chairman A M Naik, added.
The L&T management said that it would like to have at least 26% in Mindtree in the immediate future and, going forward, it would like to hold 51% in the IT services company. A 26% stake will allow L&T to block special resolutions and a 51% will give L&T the right to exercise majority control over Mindtree and change the complete board of the company. The transaction requires approvals from the Competition Commission of India and anti-trust regulators in certain foreign jurisdictions, which are expected to come in the next 45 days, said L&T CFO R Shankar Raman. Raman said that L&T cannot buy or trade in Mindtree shares until the transaction receives necessary approvals. “We don’t know what the response will be for the open offer…market dynamics will play out.”
Subrahmanyan said L&T had approached the transaction from its dil and laced it with lots of pyaar (love). “While its pyaar for Mindtree is one-sided like it is seen in several Hindi movies, it could turn mutual eventually, like it happens in movies and then we will live happily ever after,” he quipped.
Source: Economic Times