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September 20 2019
‘A new acquirer will change not only culture but also strategy’
22 March 2019

Buy-back plan is a response to the market trend and aligned with what others in the industry are doing, says the Mindtree CEO

Rostow Ravanan is one of the co-founders of Mindtree, which was started in 1999. Before taking charge as CEO in April, 2016, he was the chief financial officer of the IT services firm. The Hindu spoke to him soon after infrastructure major L&T made clear its intentions of acquiring at least 66% stake through a stock market mop-up and an open offer, after it struck a pact with Cafe Coffee Day’s V.G. Siddhartha to buy out his 20.4% in Mindtree. Excerpts:

Considering his 20% stake in Mindtree, Mr. Siddhartha was a valued investor for you, and among the first to invest. Have you and he fallen out?

When Mindtree started in 1999, we had Mr. Siddhartha and Walden International as our first investors.

There has been no falling out at all. There has been no relationship issue either on the personal or professional front with him. It so happened that at this point in time, the pressures of his financial commitments have forced him to look at selling his stake.

Didn’t Mr. Siddhartha approach you first? Or was it that Mindtree promoters did not have the wherewithal to buy him out?

We were aware of his intentions and were working to see what was possible. Maybe he found the price that L&T offered was better. Maybe the outcome of that understanding was more aligned to his interests and that is why he chose to deviate from what we thought we could do together.

With only 13% among promoters, didn’t you anticipate a hostile acquirer? Even as far back as December 2013, promoter shareholding was only about 16.58%.

Given the relationship we had with Mr. Siddhartha, we counted on him as much as we did on ourselves. The financial pressure on him may have led him to a different set of priorities leading to the current circumstances.

Co-founder Subroto Bagchi’s letter to Mindtree employees says that in the past, the company’s founders have politely declined offers to buy you out. Did L&T approach you?

Mr. Bagchi’s email was more to symbolically illustrate that our priorities were building the company rather than entertain any financial considerations for our stake. No comments specifically on L&T.

Has Mr. Siddhartha refused to support your buy-back plan?

Mr. Siddhartha has made known his intentions to us that he has an agreement with L&T and that he won’t be able to support Mindtree’s buy-back plan.

For a buy-back, you need special approval of shareholders with 75% voting in favour. Is that likely?

It is true that with an open offer at play, the company would need 75% shareholder approval for a special resolution to go ahead with the buy-back plan. In Wednesday’s meeting, the board had a few questions for us. So we will do a little homework and come back to the board.

Even if your buy-back goes through, you may not, possibly, be able to mop up more than 3-4%. Can you fight L&T by going down this path?

That is right. But the buy-back is not in response to L&T’s acquisition bid. At the end of the day, there was a willing seller and willing buyer [Mr. Siddhartha and L&T]. Our buy-back was intended earlier. It so happened that it coincided with developments with L&T.

Our buy-back plan is a response to the market trend and is aligned with what other companies in our industry are doing to add to shareholder value.

Is Mindtree’s founding team against L&T’s acquisition because it goes against your culture?

Culture plus strategy. A new acquirer will change not only the culture of the firm but also the strategy as to how we should reach where we want to be.

If L&T goes through with its intended plan, it may end up holding 66% stake in Mindtree. Would the promoters either sell out to L&T or for the sake of progress, work with the new acquirers? Or is there a white knight you may bring in?

There is no way to answe that right now. L&T’s holdings may go all the way from 20% now to whatever they have announced their intent for.

We [promoters] have to evaluate different options in the meantime.

But that apart, I do want to add that I am surprised and disappointed that some parts of the media, even in their editorial sections, have erroneously referred to us and our intentions. That puts smaller players like us at a disadvantage compared with others who have access to larger resources.

 

 

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