'Mindtree is independent': L&T tells shareholders after shares plunge

After Mindtree lost close to a quarter of its market capitalisation in two trading sessions, Larsen & Toubro (L&T) on Monday tried to calm the frayed nerves of the company’s shareholders and employees, apart from its customers.

S N Subrahmanyan, chief executive officer (CEO) and managing director (MD) of the Mumbai-headquartered conglomerate, said that Mindtree would continue to run as an independent entity and there would be no alteration of positions at the Bengaluru-headquartered information technology (IT) services firm.

“Mindtree will be run as a separate entity, distinct from L&T Infotech and L&T Technology Services. The entities would be run at an arm’s length and it is inappropriate to speculate about the future structure now,” Subrahmanyan said in an email reply to Business Standard.

“Continuity will be the key theme in the management transition. No position is sought to be disturbed at Mindtree, and no changes are contemplated right now,” he said, adding that the appointment of the new CEO would be done in due course.

Mindtree shares have lost close to a quarter of their value in the last two trading sessions at stock exchanges. Shares of the IT services firm plunged 13 per cent on Monday alone after the company’s co-founders Krishnakumar Natarajan, Parthasarathy N S, and Rostow Ravanan resigned from the board and executive roles late last week.

“They will stay as board members till July 17 and as employees in line with their contracts to ensure smooth transition,” Mindtree had said in an exchange filing on Friday. The founders had also asked the company to declassify them as promoters.

After the acquisition of 60.06 per cent in Mindtree, L&T has now been categorised as ‘promoter’ of the IT firm. Earlier, the company’s board had approved the induction of L&T’s CEO & MD, S N Subrahmanyan, and its Chief Financial Officer Ramamurthi Shankar Raman as directors.

With more than one week left to the next board meet scheduled on July 17, sources in the know said that there was a sense of uncertainty among the employees of Mindtree. Even, exit of a few second-rung leaders are not being ruled out in this transition phase.

To assuage such concerns, apart from taking employees into confidence, L&T has started to work on a smooth transition with a concrete plan, sources added.

Allaying concerns of shareholders over cannibalisation of revenue, L&T said that the two companies were working on different verticals with minimum chances of client overlap. “L&T Infotech offers services to banking, insurance, manufacturing, oil and gas sectors, among others. Whereas Mindtree’s clients are in consumer packaged goods, retail, travel and hospitality, and high-tech,” said Subrahmanyan, adding, “These two firms operate in vastly different areas, with minimum client overlap. There is hardly any possibility of a direct conflict between the two entities.”

The engineering and construction major also said that L&T has made investment in Mindtree, considering “a certain situation” and all the stakeholders would benefit from L&T’s ownership in the coming years.

In the first-ever takeover bid in the domestic IT services industry, L&T has acquired controlling stake in Mindtree through a three-pronged strategy. Despite having majority stake, a successful management of transition with retention of key talent at the IT services firm would be critical for L&T to get maximum value out of its investment, said industry experts.